Kristopher GoetzThe transition from fee-for-service sick care to fee-for-value health care is driving the need for hospitals and health systems to redefine traditional measures of productivity.

Under the current model, productivity is gauged largely on individual, department-specific activities. As the model transitions, however, rather than maintaining care models that give physicians, nurses, and other medical staff incentives to provide more services—even when those services have a neutral or negative impact on patient outcomes—healthcare leaders must restructure their systems to create incentives that promote the right care.

For example, many hospitals measure lab productivity by the number of tests billed. This approach may lead to an incentive to perform unnecessary tests that cost the system more while providing little or no benefit to patients. Hospital leaders instead should shift to a model that rewards laboratory staff for conducting only those tests that are necessary and beneficial to patients, and provide disincentives for wasteful or unnecessary tests.

New metrics for a new model of care

Transitioning to measuring productivity on a cost-per-case basis refocuses emphasis on the cost and necessity of the service rather than on the quantity of departmental volume produced. It allows for a more patient-centered approach that enables organizations to focus on important initiatives such as improving throughput, reducing patient wait times, and decreasing lengths of stay. By promoting efficiency and high-value care, measuring productivity on a cost-per-case basis also aligns with new value-based payment models and population health management. 

To adopt this new model, however, hospitals and health systems must be willing to move away from decades-old definitions of productivity, and healthcare leaders should be prepared to inform and engage physicians and medical staff in making the transition. Everyone throughout the organization needs to have a clear understanding of why the cost-per-case approach creates better alignment with the hospital’s strategic and financial goals, so that they can see how their work impacts the broader organizational mission.

Involving physicians and other clinician leaders early on is essential, because they have the most direct influence in determining the course of patient care, such as the number and nature of lab tests, respiratory therapy consults, or medications ordered. As such, they are in a unique position to offer feedback and recommendations as to how to provide more efficient and effective care, and thereby lower per-patient costs.

Breaking down departmental barriers 

Implementing a cost-per-case model of measuring productivity also requires eliminating traditional divisions that exist within hospitals. Under a value-based model, the productivity of individual departments is much less important than broader service-line- and hospital-level measures. Different units, departments, and service lines must learn to work together to produce truly effective cost reduction. For example, the emergency department, intensive care unit, and inpatient medicine units should collaborate to reduce errors in patient placement, ensure the most appropriate levels of care, and reduce length of stay. Such interdepartmental initiatives can significantly reduce cost per case and are more effective than individual departments working alone.

For example, the respiratory therapy department of one hospital outperformed the 25th percentile of respiratory therapy departments at other hospitals based on national benchmarks of labor cost per treatment. However, in looking at the organization’s overall cost structure, the hospital’s leaders learned that they were spending more on respiratory therapy than nearly all other hospitals. The cause of the high costs was traced back to physicians who were ordering 50 percent more respiratory therapy treatments for patients in the intensive care unit than their peers. After reviewing, analyzing, and communicating the data, the physicians changed practice patterns to better align with national guidelines, and the hospital realized $300,000 in savings as a result.

Integrating accountability for long-term success

To measure productivity on a cost-per-case basis, organizations must implement mechanisms for constant, ongoing data collection and analysis, such as technologies that link payroll time and attendance with a hospital’s patient tracking system. So instead of measuring productivity on a monthly or quarterly basis, organizations need to have real-time productivity data, thereby enabling managers to provide clinicians and medical staff with effective feedback that can be used to drive daily operating decisions.

Front-line staff should be engaged in implementing both the new productivity measures and resulting initiatives to reduce labor and nonlabor costs. Routine and transparent communication will facilitate dialogue in addressing complex topics and any challenges that arise, and ensure that the organization’s overall goals remain a key focus for all involved. 


Kristopher Goetz is a vice president in the financial planning and cost management practices of Kaufman, Hall & Associates, Inc., Skokie, Ill.