This document summarizes a presentation by Paul Fogel on improving productivity in healthcare organizations. It discusses how labor costs make up the majority of expenses in healthcare and controlling costs is important but challenging given the culture. Popular approaches to improving productivity like layoffs, benchmarking, and Six Sigma have had limited success. True accountability requires defining clear standards, responsibilities, reporting and incentives. Developing realistic productivity standards involves analyzing workloads, negotiating with managers, and allowing flexibility for changes in volume or new programs. Regular reporting and reviews can hold managers accountable while giving them flexibility to manage their areas.

1. Superior Productivity
in Health Care
Organizations
Paul Fogel, Executive Information Systems, Inc.
www.eisorg.com ▪ fogel@eisorg.com ▪ 503-317-8427
1

2. Speaker Biography
Paul Fogel, MBA, is President of Executive
Information Systems, Inc. The firm produces a
financial reporting and forecasting system for
hospitals and offers services in productivity
improvement, benchmarking, operations analysis,
feasibility studies, and business planning.
Mr. Fogel wrote Superior Productivity in Health Care
Organizations, Health Professions Press, 2003, and
an article by the same name for the Journal of the
International Society for Performance Improvement.
Other published works include Achieving Superior
Productivity in HFMA magazine, Five Tactics for
Productivity Management and Benchmarking: A
Process, Not a Number, in Managing the Margin, and
an interview on nursing productivity for the HFMA
publication The Business of Caring in the August
2008 edition.
He presents “Financial Forecasting,” “Superior
Productivity,” and “Benchmarking in Action”
seminars to executive audiences for the Healthcare
Financial Management Association.
2

3. We’ve tried to grow
our way to profits,
but encountered the
“profitless growth
phenomena.”
3

4. Controlling cost is
essential… but health
care culture resists.
4

5. 150,000
In a service industry like health care, labor
expense dwarfs everything else.
112,500
75,000
37,500
Salaries Med Purch 0
Other Deprec Pro Fees
Supplies Services Operating Non-Med Bad Debt Interest
Supplies 5

6. We keep trying the same
conventional methods,
hoping for better than
conventional results.
6

7. Central planning no
longer works in a
sophisticated industry
with a highly educated
workforce.
7

8. We need to bring labor
costs under control by
defining good
management, and create
real accountability to
that end.
8

9. We can regain stability if
we live by certain ground
rules and principles that
everyone understands
and accepts.
9

10. Implementation
Standards Accountability Reporting
Incentives and
Consequences
10

11. Popular Approaches in
Productivity Management
11

12. Across the board cuts and
layoffs haven’t worked.
12

13. 2100
1860
1620
FTE
1380
Layoff
1140
900
2004 2005 2006 2007 2008 2009
13

14. It seems like just yesterday that everyone was
talking about TQM/CQI…
14

15. …and then came benchmarking, still active in
approximately one-quarter of U.S. hospitals.
15

16. 16

17. Piles of vendor reports
are distributed to
managers, who then call
their peers…
17

18. 18

19. Six Sigma is sophisticated, but its appeal has not
been as widespread as proponents had hoped.
19

20. Lean manufacturing techniques from the Toyota
Production System are being applied to health care.
20

21. Skill mix changes look good on paper, but there
have been some unintended consequences in
practice.
21

22. Wish List: Breakout Exercise
What do you wish could be changed about the way your
organization manages productivity? What would be the benefit?
Wish
List Huge
Benefit
1
2
3
4
5
22

23. The easy part has already been done.
23

24. The key issues are all
about creating real
accountability, incentives
and consequences, policies
and procedures.
There is no substitute for knowledge.
W. Edwards Deming
24

25. How to Develop Realistic
Productivity Standards
25

26. The result of analysis and
negotiation, a
productivity standard is a
measure relating
workload to staffing.
26

27. Assign performance
measures for each
department that describes
its mission, patients, or
purpose.
27

28. Typical Performance Measures
Clinics:
Visits Human
Resources:
Employees
Cath
Lab:
Weighted
Procedures Imaging:
Weighted
Procedures
Respiratory:
Billed
Time
Units Nursing:
Equivalent
Patient
Days
Emergency:
Visits Laboratory:
Billed
Tests
Environmental:
Square
Feet Medical
Records:
Patient
Records
Engineering:
Square
Feet Pharmacy:
Orders
Processed
Admitting:
Registrations Rehabilitation:
Billed
Time
Units
Business
Office:
Original
Claims Surgery:
Surgery
Minutes
Dietary:
Meal
Equivalents Overhead
Areas:
Adjusted
Discharges
28

29. 29

30. 30

31. Home
Health Miles 1-­‐50 51-­‐100 101-­‐150 151-­‐200
Hours/Visit Points 1 2 3 4
Less
than
1 1 2 3 4 5
1-­‐2
hours 2 3 4 5 6
2-­‐3
Hours 3 4 5 6 7
4+
Hours 4 5 6 7 8
31

32. Combining workload with
hours and salaries
determines each
department’s productivity
loss or gain.
32

33. Productivity Analysis
0.9 more hours worked labor cost
per patient day in 2008 per patient day
Total Labor Per Unit Productivity Change
Unit of Service Volume Hours Wages Hours Wages Hours Wages
2006 Patient Days 3,367 40,743 1,247,131 12.05 370.38 NA NA
2007 Patient Days 3,530 42,012 1,281,182 11.90 362.90 701 21,377
2008 Patient Days 3,618 46,310 1,490,383 12.80 411.94 (3,256) (104,793)
2009 Patient Days 3,840 49,882 1,653,472 12.99 430.59 (730) (24,185)
Four Year Performance 14,356 178,947 5,672,168 12.47 395.12 (3,280) 107,450
0.9 more hours per patient day in 3,256 hours at
2008 applied to 2008 patient days 2008 salary rates
33

34. Productivity Change
Department by Department, $000s
$9,755 $9,656 $10,177
$6,149
$6,459
$5,051 Gaining
Losing
$(3,295)
$(4,825) $(5,126)
$(10,974) $(10,231)
$(19,887)
2006 2007 2008 2009
34

35. After the analysis, meet
with managers and discuss
the operational details that
no analysis could reveal.
35

36. When negotiating standards with managers, use
these guidelines...
If… Then...
Current
performance
Maintain
current
is
superior performance
Budget
is
superior
to
If
budget
is
realistic,
historical
productivity use
the
budget
History
better
than
it
Use
history
is
today
36

37. Conventional fixed/
variable cost theory
says that growth
produces greater
efficiency, and shrinking
to less…
37

38. Emergency (Hours per Visit)
3.00
2.25
Value Title
1.50
0.75
0
100 200 300 400 600 600+
Beds 38

39. Imaging (Hours per 100 Procedures)
150
113
Value Title
75
38
0
100 200 300 400 600 600+
Beds
39

40. IT & Telecommunications (Hours per User)
7.00
5.25
Value Title
3.50
1.75
0
100 200 300 400 600 600+
Beds 40

41. EVS (Hours per 1000 Feet)
56.00
49.50
Value Title
43.00
36.50
30.00
100 200 300 400 600 600+
Beds
41

42. Another way of
looking at fixed
costs is to create
a “functional”
income
statement.
42

43. Fixed staff varies with
variable staff.
Variable staff varies with
volume.
Therefore,
fixed staff varies with
volume.
43

44. The New Deal
44

45. Managers may have formal
accountability, but in
practice, basic productivity
decisions are assigned to
the executives.
45

46. The testimonial process
trains managers how to
beg, and teaches
executives how to
bestow favors.
46

47. 47

48. Accountability
Implementation
Standards Accountability Reporting
Incentives and
Consequences
48

49. Individual accountability is a necessary building
block for any large, effective organization.
49

50. To be accountable, we
must have the power to
act. Why aren’t
managers more
responsible?
50

51. What happens when we design management
practices around worst-case fears?
Because Some Managers... Then...
Might not be responsible No one can be responsible
Might abuse hiring authority No one may have authority
Might exceed costs All must be restricted
Might make mistakes No one can be trusted
51

52. Managers are
responsible for meeting
productivity and cost
standards, 100%
variable or 100% fixed.
Form follows function.
Louis Henri Sullivan
52

53. To align authority and
accountability,
managers can hire on
their own, but held
strictly accountable to
standard.
53

54. Funding for new non-
volume related
positions or functions
still need committee
approval based on
merit.
54

55. Occasionally, we’ll need to change a
department’s labor standards.
• Will a new hire violate the
standard?
• Has volume increased
(variable departments)?
• Is this a new non-volume
related position?**
• Can we hire now for new
programs?**
• Can we hire now for
planned volume?**
**committee approval required
55

56. Maintain continuity
from the analysis to the
standards–no
translating, no shaving,
and not too many
decimals.
56

57. The new regime
offers something to
managers in
return for
accepting
individual
responsibility.
57

58. Implementation
Implementation
Standards Accountability Reporting
Incentives and
Consequences
58

59. Linking productivity to
mission and strategy
develops momentum and
creates a sense of urgency.
59

60. A transition period allows
managers to adjust and plan; an
informal transition followed by
a formal period.
“If it wasn't for the last minute, nothing would get done” 60

61. Monitoring and Reporting
61

62. Have we been seduced by
technology? Who’s in
charge: the managers, or
the software?
62

63. Over-engineered standards
are unworkable, and minute,
detailed monitoring harms,
not helps, accountability.
63

64. Control is a management
issue, not a technical or
systems problem.
Centralized control is
self-defeating.
64

65. We can choose more
centralized control and
less manager
responsibility...
...or more manager
responsibility and less
centralized control.
65

66. 11.4
10.6
9.7
8.9
8.0
Jul 1 Jul 4 Jul 7 Jul 10 Jul 13 Jul 16 Jul 19 Jul 22 Jul 25 Jul 28 Jul 31
66

67. 11.4
10.6
9.7
8.9
8.0
Jul 1 Jul 4 Jul 7 Jul 10 Jul 13 Jul 16 Jul 19 Jul 22 Jul 25 Jul 28 Jul 31
67

68. 11.4
10.6
9.7
8.9
8.0
Jul 1 Jul 15 Jul 29 Aug 12 Aug 26 Sep 9 Sep 23
68

69. 11.4
10.6
9.7
8.9
8.0
Jul 1 Jul 8 Jul 15 Jul 22 Jul 29 Aug 5 Aug 12 Aug 19 Aug 26 Sep 2 Sep 9 Sep 16 Sep 23 Sep 30
69

70. 11.4
10.6
9.7
8.9
8.0
Jul 1 Jul 15 Jul 29 Aug 12 Aug 26 Sep 9 Sep 23 7-Oct 21-Oct 4-Nov 18-Nov 2-Dec 16-Dec 30-Dec
70

71. 11.4
10.6
9.7
8.9
8.0
Jul 1 Jul 15 Jul 29 Aug 12 Aug 26 Sep 9 Sep 23 7-Oct 21-Oct 4-Nov 18-Nov 2-Dec 16-Dec 30-Dec
71

72. Use the former testimonial
committee for quarterly
reviews for presentation,
discussion, and correction.
72

73. 73

74. Reports can be
created in-house
using the GL report
writer and merged
into a single unified
document.
74

75. 75

76. Worklo
Distrib
Chart
a mism
of staf
patien
in the
mornin
late ev
hours
76

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Executive Information Systems, Inc. Workload Distribution Analysis 12/4/2009
77

78. Staffing Schedule Template
Treatments every Half Hour Staff WORKING every Half Hour Worked Hours per Unit of Service
Time Sun Mon Tue Wed Thu Fri Sat Sun Mon Tue Wed Thu Fri Sat Sun Mon Tue Wed Thu Fri Sat
7:30
AM 0 0 0 0 0 1.0 2.0 2.0 2.0 1.0 0.0 0.0 0.0 0.0 0.0
8:00
AM 2 3 3 2 2 7.0 7.0 6.0 7.0 7.0 1.8 1.2 1.0 1.8 1.8
8:30
AM 2 3 4 3 2 7.0 7.0 8.0 7.0 7.0 1.8 1.2 1.0 1.2 1.8
9:00
AM 3 4 5 4 3 7.0 7.0 9.0 7.0 7.0 1.2 0.9 0.9 0.9 1.2
9:30
AM 4 5 6 5 4 7.0 7.0 9.0 7.0 7.0 0.9 0.7 0.8 0.7 0.9
10:00
AM 4 5 6 5 4 7.0 7.0 10.0 7.0 7.0 0.9 0.7 0.8 0.7 0.9
10:30
AM 4 5 7 5 4 7.0 7.0 10.0 7.0 7.0 0.9 0.7 0.7 0.7 0.9
11:00
AM 5 5 6 5 5 7.0 7.0 10.0 7.0 7.0 0.7 0.7 0.8 0.7 0.7
11:30
AM 5 6 7 5 5 7.0 7.0 10.0 7.0 7.0 0.7 0.6 0.7 0.7 0.7
12:00
PM 2 2 2 2 2 2.0 2.0 10.0 2.0 2.0 0.5 0.5 2.5 0.5 0.5
12:30
PM 2 2 2 2 2 7.0 7.0 10.0 7.0 7.0 1.8 1.8 2.5 1.8 1.8
1:00
PM 5 5 6 4 5 7.0 7.0 11.0 7.0 7.0 0.7 0.7 0.9 0.9 0.7
1:30
PM 4 5 6 4 4 7.0 7.0 12.0 7.0 7.0 0.9 0.7 1.0 0.9 0.9
2:00
PM 4 5 6 5 4 7.0 7.0 12.0 7.0 7.0 0.9 0.7 1.0 0.7 0.9
2:30
PM 4 5 6 4 4 7.0 7.0 12.0 7.0 7.0 0.9 0.7 1.0 0.9 0.9
3:00
PM 3 3 5 4 3 7.0 7.0 12.0 7.0 7.0 1.2 1.2 1.2 0.9 1.2
3:30
PM 3 3 5 3 3 7.0 7.0 12.0 7.0 7.0 1.2 1.2 1.2 1.2 1.2
4:00
PM 3 3 5 3 3 6.0 6.0 12.0 6.0 6.0 1.0 1.0 1.2 1.0 1.0
Daily
Total 59 69 87 65 59 6.3 6.4 9.8 6.4 6.3 1.9 1.7 2.0 1.8 1.9
Volume
vs.
Staffing Staff Productivity Hrs
per
Unit
Treatments Avg
Staff
90 10.0 10.0 2.1
68 7.5 7.5 1.6
Hrs
per
Unit
Treatments
Avg
Staff
Staff
45 5.0 5.0 1.1
23 2.5 2.5 0.5
0 0 0 0
Mon Tue Wed Thu Fri Mon Tue Wed Thu Fri 78

79. Incentives and Consequences
79

80. Where Do We Stand Today?
Question Answer
1. Do managers have powerful incentives to
exceed expectations?
2. Are there serious consequences for coming
up short?
3. Do we have an official, written productivity
policy?
80

81. 81

82. Knowledge Action! Incentives
82

83. Let’s reward managers who
keep costs down for the
long term.
83

84. Dept Performance
Quality Industry
Rank
Gainsharing 84

85. Top Workplace Motivators
Top Motivators Top De-Motivators
Market wages Low wages
Achievement Job insecurity
Influence and status Low influence and status
Recognition Little recognition
Stimulating, challenging work Little challenge
Freedom to be creative Little creative freedom
Learning, career development Dead-end job
Exceptional working Poor working
relationships relationships
85

86. What should happen when
managers consistently
miss their standard? Why
are we so reluctant to
discipline?
86

87. An official policy promotes
follow-through, while doing
away with testimonials and
management by exception.
87

88. Sample Productivity Policy
Department managers are responsible
for meeting their productivity standards
as established by the organization.
These standards are subject to change
when circumstances warrant. Such
standards consist of productive hours
per unit of service and productive
salaries per unit of service. For “fixed”
departments, those not on a variable
workload measurement, such standards
consist of total productive hours and
total productive salaries. Consistent,
long-term failure to meet these
standards may be grounds for dismissal.
88

89. Productivity Committee Rules
• If either hours or salary
standard unfavorable by >1%
last quarter, correction plan to
VP
• If both hours or salary
standard unfavorable by >1%
last quarter, VP, manager goes
before committee
• If performance is below
standard one quarter,
managers must make it up next
quarter
89

90. worked fte per aob
3/
1
5.5
6.0
6.5
7.0
3/ 7/2
31 0
4/ /2 07
1
LCL
UCL
4/ 4/2007
2
Mean
5/ 8/2007
1
5/ 2/2007
26 0
6/ /2007
6/ 9/2 07
23 0
7/ /2007
7/ 7/2 07
21 0
8/ /2007
8/ 4/2 07
18 0
9/ /2007
9/ 1/2 07
1
9 5/ 007
10/29 200
/ 7
10/13 200
/ 7
11/27 200
/ 7
11/10 200
/2 /2 7
12 4/2007
12 /8 00
/2 /20 7
2
1/ /2007
1/ 5/2 07
19 0
2/ /2008
2/ 2/2 08
16 0
3/ /2008
90
3/ 1/2 08
1
pay period
3/ 5/2008
2
u chart
4/ 9/2008
beyond limits
1
7 below centerline
7 above centerline
4/ 2/2008
Worked FTE per AOB
2
2 out of 3 below 2 sigma
2 out of 3 above 2 sigma
5/ 6/2008
1
5/ 0/2008
24 0
6/ /2008
6/ 7/2 08
21 0
7/ /2008
Temporary: UCL = 6.58, Mean = 6.05, LCL = 5.51
7/ 5/2 08
Inspected Mean = 189.05, Counts Mean = 1143.35
19 0
8/ /2008
8/ 2/2 08
1
8/ 6/2008
3
9/ 0/2008
1
9/ 3/2008
10 27 00
/ 8
10/11 200
/2 /20 8
1 5/ 08
111/8 200
/2 /2 8
12 2/2008
12 /6 00
/2 /20 8
0
1 /2 08
1/ /3/2008
1
1/ 7/2009
31 0
/2 09
00
9

91. Your Homework
91

92. Case Studies
92

93. 93

94. 94

95. 95

96. 96

97. 97

98. 98

99. 99

100. 100

101. 101

102. Questions?
102

103. Appendix
Productivity Calculations
Further Reading
103

104. Productivity Calculations
• Productive Hours per Unit of Service: productive hours
divided by workload volume
• Productive Wages per Unit of Service: productive dollars
divided by workload volume
• Productivity Change - Productive Hours: current year
productive hours per unit of service, minus last year's
productive hours per unit of service, multiplied by current
year workload volume
• Productivity Change - Productive Wages: multiply the
productive hours in the column to the left by average hourly
wages (including temporary worker and registry). Total
productive dollars divided by total productive hours, equals
average hourly wages
104

105. Further Reading
• Fogel, P., Superior Productivity in Health Care Organizations,
Health Professions Press, 2004
• Fitz-enz, J., The 8 Practices of Exceptional Companies: How Great
Organizations Make the Most of Their Human Assets, AMACOM,
1997
• Lathrop, J. P., Restructuring Health Care, Jossey-Bass, 1994
• Nadler, D. & Tushman, M., Competing by Design: The Power of
Organizational Architecture, Oxford University Press, 1997
• von Hayek, F., The Fatal Conceit: The Errors of Socialism,
University of Chicago Press, 1991
• Sperry, L., Becoming an Effective Health Care Manager: The
Essential Skills of Leadership, Health Professions Press, 2003
• Spendolini, M., The Benchmarking Book, 2nd Edition, AMACOM,
2003
• Robert Gift, Benchmarking in Health Care, AHA, 1994
105