Jonathan Landsman, CISA, MBA
Senior Director of Big Data Strategy, MiraMed Global Services, Jackson, MI
Performance measurement is an important aspect of any hospital’s or facility’s operation. Measuring performance could focus on operational, quality or financial aspects of the organization. Performance measures help the organization understand what they do and how well they do it. Most organizations use their performance metrics as a way to measure their success.
The process for implementing performance measures is straightforward. Measures are selected. Target values or goals are established based on past performance, industry benchmarks or regulatory expectations. Actual performance statistics need to be collected at regular intervals and compared to various targets to identify success. Underachievement of a measure helps the organization identify opportunities for improvement.
What requires tracking and how many measures are needed? Becker’s Hospital Report identified 200 different measures an organization could use. For most organizations, these 200 measurements and the related data collection requirements would be both overwhelming and too difficult to digest. The Healthcare Financial Management Association (HFMA) suggests 14 different measures that might be useful to adopt.
Most organizations have already adopted a set of measures to monitor performance. However, because the healthcare landscape continues to change at a rapid rate, organizations should regularly review their measures asking the following questions:
- Is the current measure appropriate to the organization’s operation?
- Are there other, more appropriate measures for the organization?
- Does this measure reflect improvement in the organization’s operation, financials or patient satisfaction?
- Is there easily accessible data that is to be used for this measure?
- How should these measures be tracked and reported?
For example, measures such as length of stay (LOS) and the readmission rate may be of importance to inpatient facilities but have little or no value to outpatient or ambulatory facilities. Perhaps a measure that tracks the percentage of on-time starts for appointments, diagnostic testing and/or surgical procedures (in-patient and ambulatory) might provide a more balanced measure. Improvement in performance against such a measure might increase the number of procedures performed productivity increase capacity without capital improvement, improve other financial measures such as an increase in revenue and, perhaps, improve patient satisfaction.
Not all measures are appropriate to all departments. For example, contribution margin (CM) by specialty or by service line might be appropriate for all programs. However, expecting emergency and OB/GYN departments to have similar contribution margins as cardiac care, orthopedic and bariatric weight management departments would be unrealistic. It is important to have targets and goals that are commensurate with their industry-specific specialties. Measuring their CM as a percentage of their industry-specific specialty’s CM would allow the organization to compare the performance of dissimilar programs.
What these two examples also show is that most people are not typically involved in the selection of performance measures. Rather, the performance of their facility or department is analyzed or compared against these select benchmarks. For them, the following kinds of questions may be important:
- Do I understand the purpose, importance or value of each measure used?
- Do I understand what data elements are used and how the measure is calculated?
- Do I understand how the operation of my department might impact these measures?
- Do I understand how I can make changes to my organization to improve my operation and, therefore, our results?
Let’s look at few measures, understand what they show, how they are calculated and what is typical.
Maintained Bed Occupancy (percentage)
The occupancy rate is a percentage of the actual inpatient use over a given time period. It is used to assess the demands for hospital beds and, hence, to gauge an appropriate balance between demands for healthcare and number of beds.
The percentage is calculated as the total number of inpatient days for a given period times 100/available beds times number of days in the period.
For example, let’s assume there were 4,500 inpatient days in a 175-bed hospital for the month of May. May has 31 days. (4,500 * 100)/(175 * 31) or 450,000/5,425 or 82.95 percent.
According to Becker’s, for 2012, the average maintained bed occupancy rate was 63.5 percent, therefore this example facility’s occupancy rate was 20 percent higher than the national average. This means there is greater use or demand of this hospital’s beds in comparison to other facilities. However, this measure alone doesn’t help you determine if the facility is being used effectively.
Average Length of Stay (days)
Compares the duration or days on average that patients remain in the hospital for the same condition or medical care, known as a diagnosis-related group (DRG) classification. Each DRG has a different expected LOS, with lower acuity typically being a shorter stay and higher acuity typically being a longer stay. However, the payment for the DRGs are predetermined. The amount doesn’t change regardless of the cost of care.
LOS is calculated as the number of days between a patient’s day of admission in the hospital until the day of discharge.
Average LOS is calculated by dividing the total inpatient days by total discharges.
If we continue with the example above, we know 4,500 inpatient days occurred during the month of May. We learn there were 725 patient distinct episodes of care treated in May. While their medical conditions, DRGs and LOS each might vary, let us assume all 725 patients were admitted and discharged in May. LOS would be 4,500/725 or 6.21 days.
According to the Agency for Healthcare Research and Quality (AHRQ) the average LOS overall in 2012 was 4.5 days. Therefore, patients at this facility stay an average of two days longer.
Cost Per Stay
Cost per stay is the amount of revenue the facility receives for a unique or distinct episode of care. The amount received is based on DRG. The payment for the DRG is predetermined and the amount remains consistent. However, different payers pay different rates or fees for a given DRG. According to AHRQ, the average cost per stay was $10,400, with:
- Medicare paid on average $12,200 per DRG
- Medicaid paid $8,100 per DRG
- Private paid $9,700 per DRG
For the purposes of this example, let’s assume 50 percent of the episodes (or 363) were paid at the Medicare average, and 25 percent each (or 181) were paid at the Medicaid and private average rates. This results in:
- Medicare revenues of $4,428,600
- Medicaid revenues of $1,466,100
- Private revenues of $1,755,700
- Total May revenues of $7,650,762
When May’s total revenue is divided by the 725 episodes of care, the average cost (revenue) per stay is $10,552.00. When compared to the average cost per stay of $10,400, this facility received nearly 1.5 percent more revenue than most facilities.
Cost Per Day
Cost per day is the amount of revenue the facility receives on a daily basis. Cost per day is calculated based on the total revenues divided by the number of patient days for the same period. In our example, this facility received $7,650,762 and had 4,500 patient days.
$7,650,762/4,500 are $1,700.17 per day. According to AHRQ, the average cost per stay was $10,400 with an average of 4.5 days per stay or $10,400/4.5 or $2.311.11 per day.
So, for the month of May, this facility received only 73.6 percent of what most other facilities received on a daily basis.
Therefore, what this tells us is performance measures are critical to the success of any organization. Looking at any one measure does not tell the whole story. That appropriate measures will help you understand both where you excel but also where you might need to focus attention. Lastly, measures may provide you with answers; however, most of the time, they will generate more questions than answers. Understanding the message or value behind these measures may help you understand how you serve your community and perhaps help you anticipate what the next quarter, month or year might bring.