Hospital OR & Non-HC Service Lines, Part I

Posted on June 5, 2014


Running a productive OR is an essential competency for hospitals since the Operating Room Suite (OR) provides the average hospital with 40% of its annual revenue, the largest single departmental percentage in the hospital.

As hospitals adjust their procedure prices to become more transparent and competitive, they must follow traditional rules of economics:

Profit = Revenue – (Fixed Costs* + Variable Costs**)

*Fixed Costs – expenses that are the same every day, such as costs to run the hospital, equipment, and labor

**Variable Costs – expenses that change depending on the procedure, such as time and supplies

To provide some scale to our discussion, here are some numbers associated with the typical Operating Room Suite.  According to a 2010 Journal of Clinical Anesthesia (JCA) paper, the average cost of an OR to the hospital is $15-20 per minute, or $900-$1200 / hr. / OR, or about $10,000 per OR per day based on ten hours of use.  To contrast, the average hospital bed costs $1500 a day to staff and service.

The JCA also noted the average charge of an OR to patients is $29-80 per minute, or $1740-$4800 / hr. / OR, or about $32,000 per OR per day based on ten hours of use.  I have read of revenue rates as high as $17,000 / hr. / OR in today’s rates.

Thus, a hospital with six ORs would likely incur costs of $60,000, and revenue of $192,000 per day.  A huge caveat:  in healthcare, many ORs remain unused at night, Thursdays, Fridays and weekends, so ~30 hours / OR / week is typical.

Now contrast the healthcare industry with the food and beverage industry.  Haskell does service line design and construction for several Fortune 100 companies in the food and beverage industry.  One of those beverage clients realizes $2200 in revenue per hour for each of its service lines, which is comparable to the hospital OR revenue rate, incidentally.

The most obvious and crucial difference:  beverage lines operate 24/7, while an OR is vacant most of the day.  Beverage is pulling in almost $370,000 a week per service line, while healthcare is netting $96,000 a week per Operating Room.  That’s about 285% more revenue by beverage each week, despite healthcare’s 45% premium in per hour revenue.  Over one month, the revenue delta is over $1 million in favor of beverage’s more utilized service line.  Forget process optimization; that difference is simply attributable to scheduling, which is the text-book definition of low hanging fruit in operations speak.

[See continuation in future Part II post]