Michelle Mader, MHA, MBA
The healthcare industry must figure out how to provide services less expensively. It must implement effective cost-cutting initiatives while developing policies and procedures for managing the future costs of the emerging healthcare system. We have seen evidence of this with those who have successfully implemented orthopedic bundling and unfortunately, the struggles experienced by providers who were participating in the CMS piloting of CV bundled payments.
While facilities are recognized as capital assets on the balance sheet, they are often not strategically designed to maximize revenue or minimize operating costs. Below we discuss three ways a healthcare provider can plan for success. They include to maximize the percentage of space in a facility allocated to revenue producing space, adapt existing, underutilized space for new uses, and standardize design and layout.
Make every square foot generate revenue.
When one finds inefficient space in healthcare facilities, the challenge is to make it more efficient by changing operations or reallocating the space to serve a function that generates more revenue. This repurposing takes less time and often less money than building new space.
Five signs you have an underused space or a cost center
- Volume is low for the number of KPUs (key planning units – ORs, Beds, ED rooms, etc)
- The space looks “empty” during peak operating hours.
- There are maintenance and upkeep issues – flooring, wall coverings, cleaning turnarounds for example, that take time to resolve
- A unit is opened and closed on a consistent basis.
- Staffing levels are hard to maintain
Propelled by their reimbursement criteria, critical access hospitals (CAH) are configured to directly attribute every square foot of the facility to an organizational revenue stream without wasted space. For example, a CAH receives reimbursements on a “cost + 1” basis for each square foot with a defined function. Thus, they maximize the function of every single space and allocate very little to “overhead.”
A large hospital can also apply this tactic. Hospitals have to heat, cool, clean and maintain every square foot, and if it is underused, any profit generated from that space will be smaller. Instead, hospitals can ensure that all existing and future space maximizes revenue generation.
Waiting rooms are a prime example of space that is typically non-revenue generating. While intake and waiting is an important function to preserve, these spaces could be designed to serve multiple functions and contribute to more than one revenue stream. For example, waiting rooms could perform retail functions such as selling food or gifts that generate revenue. Or, the space could be designed to be adapted for conferences or meetings after office hours.
This waiting area also serves as retail and meeting space.
Shared areas require less square footage, costing less to build and maintain
Healthcare leaders also struggle with ways to adapt high acuity spaces to new uses. As the ACA expands access to insurance coverage and more patients see a primary care physician and stay healthier, theoretically, they would avoid using the ED for routine care.
When this transformation in care delivery eventually occurs, we expect hospitals will adapt high-acuity, lower-volume space to other functions to reduce costs. One example could be creating a general hospital intake/triage area for observation and direct admit patients rather than having staff route them through the ED. Doing so allows the ED to be used for true emergencies and eliminates the additional wait for the most appropriate bed.
There are many opportunities to share space in the adapted inpatient environment, such as nurse stations and bathrooms. Individual offices can and should be eliminated, with providers, including physicians, sharing hybrid work areas that allow privacy when its needed but also allow communication and collaboration with other staff on the care delivery team. A general consult or conference room that multiple providers can share, can be placed adjacent to a shared workstation that is close to patients.
Incrementally adapting existing space over time costs less than major renovations or building new space. Creating an exam room out of existing but underutilized space is always cheaper than building a new one. New construction costs more because of site work, shell-and-core construction, and the opportunity cost of unavailable services during the construction time period.
Standardize while designing for adaptation: avoiding present and future costs
A typical 25,000 sf ambulatory care center is relatively inexpensive to design and build due to several factors. These include its simple standard design, simple equipment installation, and light medical gases. One can design this type of facility to share space between several uses, such as immediate care, primary care, and imaging. And by planning to include higher acuity services like outpatient surgery over time as a building is designed, one can avoid the need to build a separate outpatient surgical center. Each phase of design and construction should be accompanied by an expectation that a building’s function can and will change.
There are several ways to share space between functions. For example, pre-op or PACU can overflow into primary care exam rooms. During off-peak hours, waiting rooms can house group meetings, nutrition counseling, and health education presentations.
Shared ambulatory spaces require a flexible scheduling approach, and multi-use spaces must be large enough to accommodate several different functions. To use an exam room as a procedure room, it may need to be bigger from the outsite by 100 to 160 square feet. While the cost of the room itself is higher, it is less expensive to build fewer multi-use spaces than to build more single-use spaces. One can easily adapt larger multi-purpose rooms for different uses as healthcare trends change over time.
Standardizing the design and layout of similar spaces can also reduce construction costs as well as eliminate the need to dedicate space to specific provider specialties or specific providers. With standard sizes, layouts, stationary equipment, and furnishings, family practitioners to OB/GYNs can use the same exam rooms. Standards may not suit all purposes, and therefore some specialty areas and equipment must be accounted for. However, these specialty areas can and should be minimized to only what is absolutely necessary to create the most efficient, revenue-producing space.
Some physicians may never follow standard protocols and many need dedicated space and equipment—this is reality. Take for example in a surgery center, where preference cards for instruments, drugs, and implants may vary between physicians. While this behavior creates inefficiency in ordering and stocking, staff can be proactive in monitoring process and inventory, and highlight areas of opportunity for improvement in cost containment, space utilization and process.
The most helpful way to encourage behavioral and preference modification is to tie it to cost: show the space, infrastructure and cost savings gained by standardization. When physicians own the surgery center, they realize the benefits of standardization as increased revenue. At the hospital, the case for standardization is more difficult to make because the incentive is often intangible and impersonal. The conversation around standardization is different for healthcare than it is for other industries, as hospitals are dependent upon providers that may or may not be employed. Healthcare relies upon relationships — physicians’ relationships with patients, the hospital’s relationship with payers, and so forth. While the way to approach standardization in healthcare is unique, there are always opportunities to pick the low-hanging fruit, like standardized exam rooms. And the more that end users and leaders work together, the more they will save.
Optimizing the space allocation/revenue stream relationship, adapting existing space for new uses, and standardizing design and layout are proven strategies to cut costs – eliminating the excuse that your facility is just a “fixed” cost.
Get to know Michelle and see how she can help your organization cut costs: firstname.lastname@example.org
Michelle Mader helps hospital system leaders envision the future. She works with the largest healthcare organizations across the country to align services with community needs and revenue growth. As Catalyst’s President, she collaborates with hospital leaders to achieve high-level performance and identify profitable market opportunities. A frequent speaker at national conferences, Michelle has published several articles on maximizing existing assets in a cost centric industry.