The Hidden Costs of Inefficient OR Scheduling: A CFO's Perspective

The compelling case for integrating AI in the OR stems from capacity constraints and the persistent backlog of cases. Harnessing AI can significantly enhance throughput in our facilities, optimizing both revenue and operating costs while reducing the need for capital investment to expand OR capacity. Kevin,Roberts ( CFO, Geisinger Health System)

As we step into 2024, hospitals across the nation are still recovering from the enormous financial strains of the COVID-19 pandemic. The latest reports, such as the National Hospital Flash Report, show a general improvement across operational and financial health metrics, signaling a cautious, yet steady progress toward recovery. 

‍

‍

As CFOs, our objective is to continue to improve efficiency, optimize resource allocation, and navigate through the complex currents of healthcare demands, especially in the post-pandemic era. 

Despite gradual improvements, margins remain tight, necessitating disciplined financial management, bringing to the forefront a persistent challenge that often escapes the direct line of sight but significantly impacts the bottom line – inefficient Operating Room (OR) scheduling. 

Understanding the Three Dimensions of OR Efficiency

The operating room (OR) is the financial center of the modern hospital, with surgical cases accounting for up to 40% of a hospital’s costs, 60-70% of revenue and, frequently, much of the profitability. But how much do suboptimal schedules really cost the hospital? To answer this question, we need to consider these three dimensions:

• Top-Line Impact: Efficiency in the OR directly translates to an improved top line. By enhancing OR scheduling and throughput, we can significantly boost OR volumes and revenue. The goal is to ensure that our facilities and staff operate at maximum efficiency, thereby optimizing resource allocation and increasing the number of  cases performed without increasing the necessary resources.
• Cost Impact: The second dimension revolves around cost management. Efficient use of the OR reduces unnecessary expenses, reduces overtime, and minimizes supply and labor waste. By addressing these areas, we can substantially reduce operating costs, contributing positively to profitability.
• Capital Efficiency: The third dimension is capital efficiency. The reality of capacity constraints often leads us to invest in additional facilities over time. In an ideal scenario, increased efficiency in our current ORs would reduce the need for this additional capital investment. Recognizing this, our focus needs to be on maximizing the efficiency of existing assets before considering  capital investments to expand capacity.

The Hidden Costs of Inefficient OR Scheduling

Since the OR accounts for a substantial portion of costs and an even larger share of revenue, inefficient OR scheduling can indeed lead to increased operating costs, negatively impacting profitability. Let’s consider how suboptimal OR scheduling can quietly drain resources:

• Lost Revenue from Canceled Surgeries: Canceled procedures are not just missed care opportunities; they represent a direct loss of revenue and a waste of resources that were prepped and waiting. The impact of these cancellations is twofold – a direct hit to potential revenue and an increase in operating costs due to the underutilization of staff and resources.
• Overtime Expenses: Inefficiencies often lead to procedure backlogs, pushing staff into overtime, escalating labor costs, and inadvertently paving the way for employee burnout and reduced productivity.
• Unnecessary Operating Expenses: A poorly optimized schedule can lead to impromptu, costly procurement of supplies and underutilized OR spaces – each contributing to a financial drain that's preventable with better scheduling practices.
• Impact on Reputation and Patient Satisfaction: The ripple effect of scheduling inefficiencies touches not just the financials but also patient satisfaction and the hospital's standing in the community. Delays and cancellations will undoubtedly frustrate patients, nudging them towards competitors and tarnishing the hospital's reputation.
• Legal and Quality of Care Implications: Beyond the direct financial implications, inefficient scheduling can have legal implications. Prolonged OR times and rushed procedures, resulting from OR scheduling inefficiencies, can elevate the risk of complications and medical errors, potentially leading to legal actions and settlements.

The Staffing Conundrum: A Persistent Challenge

A significant hurdle in achieving optimal efficiency is staffing. Last year, the healthcare sector continued to face significant staffing challenges. A survey conducted by the Deloitte Center for Health Solutions, revealed that a vast majority (85%) of health system leaders identified staffing challenges as a major impact on their strategy for the year. The nursing sector, in particular, was under strain, with a projected need for approximately 1.2 million new nurses by 2030 to replace retiring nurses and cater to the aging baby boomer population.

The issue is exacerbated by rapid turnover, with some newly hired workers leaving within the first 90 days, as well as growing rates of stress and burnout experienced by healthcare professionals. 

The pandemic has intensified this challenge, placing unprecedented pressure on staffing levels and costs. This pressure is likely to persist, influenced by broader economic trends such as rising inflation and a labor environment marked by great resignation and shifts in traditional job structures.

Bridging the Gap: The Role of Technology and AI

Given our capacity constraints and the constant backlog of cases, the integration of AI and technology is not merely an option, but a necessity. The ability to put more volume through the same facility and staff promises to significantly improve efficiency, and also reduce the need for further capital investment in new ORs. However, brute force has its limits in improving efficiency. This is why technology plays a pivotal role, enabling us to become much more efficient than imagined possible.

As we struggle with these challenges, the call for automation becomes increasingly loud and clear. The need for technology that improves processes and also reduces the reliance on labor is evident. In an industry sector where adding technology often means adding labor to manage it, we need a paradigm shift. We need technology that optimizes our use of scarce resources, addressing the dual challenge of process improvement and labor shortage.

Implementing AI-driven scheduling in hospitals can significantly enhance the profitability through multifaceted improvements:

• Optimized Resource Utilization: AI-driven scheduling ensures maximum utilization of ORs, staff, and equipment, thereby reducing idle time and unnecessary overhead costs. Utilizing technology to optimize critical resource allocation can allow the same number of procedures with fewer resources, improving efficiency and reducing costs.
• Reduced Operating Costs: By predicting peak times and streamlining the scheduling process, AI can minimize the need for overtime and reliance on contingent staff, leading to substantial labor cost savings.
• Enhanced Revenue Opportunities: AI algorithms can strategically schedule high-revenue procedures during prime hours, ensuring that the most profitable procedures are prioritized, thus maximizing revenue potential.
• Improved Patient Throughput: Efficient scheduling reduces patient wait times and cancellations, thereby increasing the number of procedures performed and enhancing patient satisfaction and retention.
• Data-Driven Decision Making: AI provides real-time data and predictive insights, enabling CFOs to make informed decisions about staffing, resource allocation, and capital investments, aligning operational efficiency with financial objectives.

As we move forward, it's clear that inefficient and ineffective OR scheduling is more than a logistical issue; it's a significant drain on hospital’s finances. With staffing challenges and the growing need to modernize our operations, embracing AI-driven scheduling to optimize resource allocation is no longer optional - it's necessary to ensure that our hospitals are financially sustainable.