(This case study is related to cost management in hospital and is based on approach used by CEO to implement certain cost cutting measures in his hospital.)
Situational background
The CEO of a large hospital has been particularly concerned
about increasing operational cost of the hospital and have decided to
initiate some cost containment measures. As a process he put a 3 member group
to work out recommendations to control operational cost. The group after
thorough review came out with several recommendations. The CEO after going
through various recommendations and using his own judgement decided to go ahead
with 3 recommendations in first place. CEO being a believer of inclusive
decision making decided to discuss it with key people in his organization.
Read the post on 'Pricing of Hospital Services' for a better background understanding
Recommendations made (Details and rationale for each recommendation is given further below)
- Changing the operation theater timings for planned surgeries from existing 9:00 – 16:00 to 11:00 – 18:00
- Allowing cut strip medicines to be sold to patient and also accept it back for refund at the time of discharge
- Replacing 25% of the oxygen cylinders with oxygen concentrators
Anticipating too much difference of opinions if discussed in
large group, he thought of discussing it first with following key personnel who
may be most affected
- Head of surgery department
- Nursing in-charge of OT
- Pharmacy In-charge
- In-charge of biomedical engineering department
- Head of medicine department
Details and rationale
of recommendations
1. Changing the operation theatre timings for planned surgeries from existing 9:00 – 16:00 to 11:00 – 6:00:
One of the major expense was electricity bill and operation
theatres has been responsible for a very high portion of the bill. The working
group observed that state electricity board have segregated pricing on
electricity usage depending upon which time of the day it is being used, as
given in table below.
Electricity charges
for commercial use
Time
of the day
|
Base
rate
|
Increase/Decrease
in energy charges
|
22:00 to 06:00
|
Rs. 4.00 per unit
|
(-1.25 Rs. ) per unit
|
06:00 to 13:00
|
0
|
|
13:00 to 18:00
|
(-1.00 Rs.) per unit
|
|
18:00 to 22:00
|
+1.00 Rs. per unit
|
Currently the hospital’s operation theatre functions from
9:00 am to 4:00 pm for planned surgeries, with full capacity throughout the
time. By changing it to a new time additional 2 hours of OT electricity will be
billed at 75% of the current rate. After calculations, the group has stated
that they will be able to reduce the overall electricity bill by 8%. 11:00 –
6:00 timings is suggested as till 6:00 pm is the official working time in the
hospital.
2. Selling and refunding cut strip medicines:
This recommendation was specifically to
reduce cost to patients. The group observed that since the hospital has the
policy of selling entire strip, most patients’ ends up buying extra medicine
than required. The policy was intended to prevent medication errors due to
incomplete labels on a cut strip. However, that group opines that pre-printed
stickers can be used to label the cut strip to take care of this. Through a
sample survey following data was compiled by the group to substantiate their
recommendations
Speciality
|
n
|
Average bill amount (without
medicine)
|
Average cost of medicines per
patient
|
Total bill amount
|
Average cost of extra med per
patient
|
Percentage saving to patient
(if cut strip allowed)
|
Medicine
|
35
|
19,250
|
12,300
|
31,550
|
2,900
|
9.19%
|
Surgery
|
28
|
43,670
|
8,900
|
52,570
|
3,850
|
7.32%
|
Paediatrics
|
25
|
22,500
|
7,500
|
30,000
|
1,550
|
5.17%
|
OBG
|
30
|
20,850
|
6,800
|
27,650
|
1,300
|
4.70%
|
3. Substituting 25% of oxygen cylinders with oxygen concentrators:
The group discovered that
given the amount of oxygen they use, investing in oxygen concentrator may work
as a cost saving measure in long run. Within 1 year, they will recover the cost
by saving expenses on refilling the cylinders. Since, patient care cannot rely
100% of oxygen concentrator (as it has issues with battery charging and
maintenance), group recommended to keep a mix and advised to replace 25% of
cylinder requirement with concentrator.
Task for the readers of the case:
- Assess the rationality and feasibility of each cost cutting recommendation
- Anticipate effects of these decisions on the department given above.
- Identify how, different personnel called for meeting would react to each of this measures
- What kind of response should the CEO be prepared for from each personnel?
(Please leave your comment below)
