Healthcare leaders are still dealing with the impact of COVID-19, but one thing is certain — hospitals have taken a financial hit. During the last four weeks, costs have skyrocketed while volume has shifted abruptly to critical care. At the same time, all facilities have experienced a sudden drop in surgical services revenue.
Since March 14, 2020 — when the U.S. surgeon general first advised hospitals to put elective surgeries on hold — well over 2 million procedures have been cancelled. Elective surgery drives the bulk of operating income for most hospitals, so the loss of these high-margin cases is concerning.
Consider a typical hospital with an 11-room OR (the U.S. median) and surgical volume of 58 cases per room per month (the U.S. average). Assuming that approximately 60% of this volume is elective cases that can be safely postponed, this hospital has cancelled roughly 375 cases in the last month. According to Surgical Directions’ proprietary benchmarks, the average contribution margin for an elective outpatient procedure is $4,090 per case. That means the typical hospital has lost more than $1.5 million in operating income in the last 30 days alone.
Larger hospitals with a high volume of elective surgery have suffered even bigger losses. The main point is that the OR accounts for up to 65% of hospital profit margin, so this missing volume is cutting deeply into cash flow and net income.
An extra danger for ORs that are slow to act
The government has committed to $117 billion in emergency funding for hospitals, including a 20% Medicare DRG add-on payment for inpatient COVID-19 care. However, this support may still fall short of the gap created by cancelled surgeries. In addition, the coronavirus could exacerbate another problem that money will not easily solve — the loss of surgical volume to ambulatory surgery centers (ASCs).
Even after the pandemic subsides, hospitals will be dealing with the aftermath for several months. ASCs with leaner operating structures will likely reestablish normal operations more quickly, enabling them to capture a significant percentage of postponed cases. This will weaken the short-term recovery for hospital ORs and could inflict long-term damage on hospital strategy.
To avoid a permanent loss of market share, hospital leaders need an effective strategy for rapidly reestablishing surgical services. This will enable hospitals to recoup lost revenue more quickly and maintain their strategic position within the local surgery market.
Creating a successful OR recovery plan will be a career-defining challenge for many hospital executives. To make the plan work, leaders need to work closely with five key groups.
1. Work with OR leaders to develop a capacity expansion plan
The first step is to establish a clear baseline of OR capabilities and needs. Work with the director of surgical services to quantify current capacity in terms of active rooms, staffing and supplies and develop an initial estimate of the total case backlog.
Next, identify strategies for expanding OR capacity over the next 60 to 90 days. In terms of scheduling, there are two basic options:
- Expand the schedule horizontally by keeping ORs open longer in the evening or on weekends
- Expand the schedule vertically by returning previously closed rooms to active duty
Another option is to boost capacity by increasing OR efficiency. A comprehensive surgical services turnaround usually takes 6 to 9 months, but in our experience OR teams can significantly boost efficiency in a few weeks by targeting a handful of “quick win” changes. (Key areas to focus on include the role of anesthesia and Preadmission Testing — both discussed in more detail below.)
Under the present circumstances, your OR may need additional options for accommodating deferred elective procedures. We recommend a “Super Saturday” strategy. A Super Saturday (or Super Sunday) is a special weekend block for high-volume surgical specialists. Hospitals can use this approach to significantly boost productivity within a tight timeframe, often with a focus on high-margin procedures.
Hospital executives should also work with OR leaders to identify resource needs. For the most accurate estimates, we recommend using predictive analytics to model staff and facility requirements. Specialized perioperative analysts can use predictive modeling to generate valuable insights that support accurate resource allocation.
2. Talk to surgeons to understand their needs and capabilities
Once the basic capacity expansion strategy is in place, work with surgeons to plan individual blocks and schedules. Surgeons will be eager to get back in the OR, so you may face some pressure regarding schedule access. The key is to take a consultative approach.
First, sit down with surgeons and their schedulers to quantify surgical backlogs. How many cases does each surgeon need to schedule in next 90 days? What is the procedure mix? Are there any urgent cases that should be triaged to the top of the schedule?
Second, gauge each surgeon’s interest in the different scheduling options — longer days, additional blocks, or a Super Saturday. The best candidate for a weekend specialty block is a surgeon who knows how to expedite cases and is comfortable working out of two rooms. Productivity is a key goal, so make sure the surgeon has a panel of low-risk patients who are unlikely to require extended operative time.
In addition, build Super Saturday blocks around common procedures that can be “bundled” for high efficiency. For example, an experienced general surgeon with the right resources could perform 12 inguinal hernia repairs in a single eight-hour block. Good candidates also include knee arthroplasty, cystoscopy and other relatively predictable procedures.
As plans begin to solidify, make sure the OR maintains ongoing communication with surgeons and their schedulers. Staff should provide regular updates on the progress of the pandemic recovery and notify surgeons of any changes in the OR queue.
3. Enlist anesthesia to lead plan execution
At a basic level, working with the anesthesia department is critical to securing adequate coverage and pre-surgical opimization for the expanded OR schedule. Even more important, anesthesiologists are key drivers of operational efficiency in surgical services. As you develop your OR recovery plan, involving anesthesia early will help ensure realistic planning and effective execution.
For example, anesthesia leadership is critical to smooth daily operations. In the most efficient ORs, anesthesia has instituted a “daily huddle” — a brief multidisciplinary meeting to preview upcoming cases and resolve any staff, room or equipment issues that could lead to delays or cancellations. The daily huddle and other anesthesia-led practices will be essential to optimizing throughput during the packed post-coronavirus schedule.
The anesthesia department is also an important part of effective OR governance. In better-performing hospitals, the anesthesia medical director helps lead the Surgical Services Executive Committee (SSEC) or similar oversight body. A strong SSEC will be essential to securing surgeon buy-in for an OR recovery plan and creating an equitable block time allocation.
To ensure a successful recovery, we recommend creating a special OR Scheduling Committee (ideally as a subcommittee of the SSEC) and putting it under the leadership of an anesthesiologist and a surgeon. This committee can work out the OR schedule in detail, prioritize backlog cases, allocate extra block time, resolve schedule conflicts, and oversee the design of weekend specialty days.
4. Dialogue with nursing to gain commitment
Most perioperative nurses are looking forward to resuming normal caseloads. However, it is important to remain sensitive to their situation. Many OR nurses will have been diverted to COVID-19 efforts, and they will still be recovering from these demanding assignments. Hospital leaders should avoid mandating extra shifts. As with surgeons, take a consultative approach — and again, offer options.
As the recovery plan begins to solidify, OR leaders will able to quantify staffing needs and available hours. Communicate the opportunity to staff, and then work individually with nurses who might be interested in working additional shifts. Many hourly employees will welcome the recovery surge as a chance to replace lost income.
Hospital leaders should also consider offering OR nurses a financial bonus for taking additional shifts during the OR recovery period. Even a modest amount will convey to nurses that their work is appreciated, and it could help you bolster staff morale at this critical time.
5. Communicate with patients to win back business
As the pandemic subsides, ORs can start rescheduling elective surgeries. However, do not wait for the “all clear” signal to begin reaching out to patients. While patient communication is primarily the surgeon’s responsibility, hospitals need to support the process and make sure all messages are aligned.
A hospital’s most powerful tool in this regard is the Preadmission Testing (PAT) clinic. The role of PAT is to make sure all patients are medically optimized prior to the day of surgery. Key tasks include coordinating labs and radiology studies, managing patient comorbidities, and ensuring clinical and financial clearances are in place. These services will be even more important as the OR stretches operations to accommodate pent-up surgery demand.
Make sure PAT staff carefully monitor history and physical (H&P) and laboratory reports. Many reports will expire during the postponement period, creating fresh hassles for both patients and physicians. The PAT clinic should coordinate with surgeon offices to update tests as needed. In addition, consider engaging a special provider (such as a hospitalist or an NP) to review and update expired H&Ps on the day of surgery. The cost is minimal compared to the savings from avoided case delays and cancellations.
Now is the time to review your hospital’s policies on patient financial responsibility. As unemployment jumps and workers lose health benefits, many surgery patients will have difficulty meeting co-pays and deductibles. Finance leaders should consider establishing more flexible payment terms. Many patients will appreciate the support, and it will help remove one of the obstacles to a strong OR recovery.
EXTRA: How to secure maximum federal relief funds
Hospitals are currently scrambling to apply for financial relief under the Public Health and Social Services Emergency Fund (PHSSEF). However, many administrators risk overlooking a critical point — to secure the maximum funding possible, you must involve OR leaders in the application process.
The first step is to establish a PHSSEF Task Force to quantify the financial impact of COVID-19. In addition to business and operational managers, the task force should include clinical leaders such as the director of perioperative nursing and the OR manager. These surgical services experts are essential to identifying and documenting losses and expenses related to:
- Cancelled elective surgeries
- Cancelled diagnostic procedures
- Additional PPE and training for OR team members
- Increased sterile processing costs
- Increased environmental services costs
Since surgery generates up to two-thirds of hospital revenue and costs, OR leaders will play a key role in developing a strong PHSSEF application. This funding will not undo the financial damage of the pandemic, but it can help hospitals recoup a portion of lost income.
For a V-shaped recovery, start planning now
COVID-19 has triggered an unprecedented drop in elective surgery revenue for U.S. hospitals. However, hospitals that start planning now have a greater chance of experiencing a V-shaped recovery marked by a strong return of OR volume.
An effective OR recovery plan will help your hospital shrink its revenue gap, strengthen perioperative processes, and reestablish the OR as a strong driver of hospital financial performance.