Focus

Trimming the Excess

In a hospital, cost containment can be achieved by preventing duplication and wastage, and introducing efficiency, automation, better technology and training, finds out Sonal Shukla

Cost cutting is implemented in industries across the world to achieve optimum returns on investments and to ensure that resources are judiciously and optimally used. Hospitals are no exception now and are eyeing cost cutting measures not just as an option to cut expenses but also to revitalise processes and give optimised care to their end customers—the patients.

One example is Chennai-based Madras Medical Mission (MMM), which has introduced cost cutting in a range of areas, boosting its efficiency. There were about 60 work shifts in MMM, leading to difficulty in monitoring staff attendance and overtime. This was standardised and reduced to 15 shifts by eliminating overtime, except in key services like operating room and cath lab. "With proper allocation of shift hours and planning manpower usage based on workloads, overtime was eliminated. It is also a question of being firm about this policy. If given, overtime is the most misused facility," says John Punnoose, Advisor, MMM.

In situations where someone works for extra hours, he/she is given compensatory off. In MMM, shifts have been divided into general shifts for day staff and round-the-clock shifts for clinical staff. Earlier, there was no control on timings of staff reporting for their shifts, and there was a new shift literally every five minutes. This practice was stopped. All the departments had to fall in line and choose the identified shift timings based on the nature of work. The move reduced manpower cost substantially from about 13 per cent of turnover to about 11 per cent (excluding cost of consultants) for the Hospital. This is just one area of cost containment which has helped MMM to remain efficient and productive. Now, the Hospital has initiated energy saving to reduce the cost towards electricity and air-conditioning. Like MMM, other hospitals, big or small, have made cost containment a continuous organisational process.

Managing Materials

"Hospitals should look for opportunities of bulk purchasing" - Dr Kishore Murthy Director Institute of Health Management Research, Bangalore

This is one of the primary areas where cost containment has penetrated reasonably. Materials usually account for 35-40 per cent of the total turnover; hence keeping a check on this department is essential. Hospitals are implementing innovative methods like group purchasing, better inventory management and appropriate technology to reduce wastage in this arena. Experts suggest that medical and office supplies, repair and maintenance contracts should be thoroughly examined. "You should look for opportunities of bulk purchasing, especially for drugs that can be purchased directly from manufacturers," suggests Dr Kishore Murthy, Director, Institute of Health Management Research, Bangalore.

Centralising Purchase

A centralised purchasing policy can be implemented to minimise duplication and wastage, develop a strong inventory management system, and minimise stock in the hospital through a detailed consumption analysis of various items to ensure that redundant items are not reordered. For instance, Healthcare Global, Bangalore, which has 10 oncology hospitals countrywide, has implemented a centralised purchasing policy involving a group purchase rather than for individual facilities. This has given the hospitals good bargaining power to negotiate directly with the manufacturer.

Pune's Deenanath Mangeshkar Hospital has been practicing the concept of 'just-in-time inventory' since its inception. "Inefficiency normally creeps into medicine storage due to excessive stocking, therefore it has to be kept to a minimum," asserts Dr Dhananjay Kelkar, Medical Director, Deenanath Mangeshkar Hospital. Therefore, the Hospital follows ABC analysis where drugs are divided into three groups: A-fast moving, B-medium moving and C-slow moving. Here, stock depends on the turnover, where the A category of drugs i.e. the one in high demand will have a higher stock volume, while for the B and C groups the stocking quantity will be less.

Identifying and streamlining the internal processes of materials has given huge dividends to MMM also. At MMM, the rising expenses of operating room consumables and drugs became a matter of concern. Being a heart institute, most items came under a package and hence little control was exercised. The package consists of various components like drugs, consumables, doctor's fee, room stay and lab tests. Also, the package is worked out taking two to three days in ICU post operation and the rest in the rooms. "However, sometimes hospital staff lose sight of this fact or does not know the specified limit of the package and end up spending huge amounts on tests and drugs during the package period. This is loss of revenue to the hospital," explains Punnoose. After identifying this high-cost area, the system was changed and a new 24-hour substore was opened. "Earlier, the stores issued items department-wise, but this was changed to patient-wise indents (items issued in the name of the patient instead of against the department which was indenting the item) to ensure control and monitoring," adds Punnoose. This also reduced stocking of consumables and drugs all over. This initiative has reduced the expenses towards materials by two-three per cent of turnover.

"Generic drugs for poor patients have eased their financial burden" - Dr G Bakthavathsalam Chairman KG Hospital & Postgraduate Medical Institute, Coimbatore

"We offer discounts during night time for using MRI machines" - Dr G Surender Rao Executive Director Yashoda Group of Hospitals Hyderabad

Branded v/s Generic

With prescription drug (branded drug) costs serving as a major contributor to cost escalations, generic drugs are an important tool for reducing the rate of growth in overall health expenditure. Says Dr BK Rao, Chairman, Sir Ganga Ram Hospital, New Delhi, "Hospitals should use generic drugs and not costly branded drugs. Generic drugs are less expensive than branded drugs as the manufacturers do not have the investment costs of drug development. New drugs are generally developed under patent protection." The patent protects the investment and the associated expense, viz. research, development, marketing and promotion. When patents are nearing expiration, manufacturers usually approach the Government/Drug Control Department to sell generic versions. In the process, the consumers get generic drugs at substantially lower costs. The low cost of generic drugs leads to less inventory cost for the hospital management too.

Healthcare Global uses generic drugs in chemotherapy to cut costs, as cancer drugs are very expensive. KG Hospital at Coimbatore prescribes 50 per cent generic drugs and 50 per cent branded drugs to its patients, thus cutting treatment costs considerably. "I asked our doctors to prescribe generic drugs about 10 years ago when our Hospital became a multi and super-speciality Hospital. The Hospital runs round the clock and generic drugs administered to poor patients have considerably eased our financial burden," says Dr G Bakthavathsalam, Chairman, KG Hospital.

Capital Costs

Technology does not come cheap. With the advent of newer and better technologies, the cost of medical equipment has reached newer heights. Experts suggest some effective methods like best bargain and time-specific charges to streamline this area. According to an industry expert, "You can get the best bargain by the appropriate technology evaluation method, life cycle costing and looking at utilisation reviews." Technology evaluation is based on specific important parameters. For a CT scan, 78 criteria can be applied in evaluating its technology. Another area of technology evaluation is life cycle costing, covering not just cost of purchase but also the cost of ownership. "Let us say, a CT scan will last for six to seven years. Therefore, one has to calculate its cost over this entire period, inclusive of cost of maintenance, electricity, manpower, training and upgradation," explains the expert. Dr George M Chandy, Director, Christian Medical College (CMC), Vellore, concurs, "The hospital must look out for technology suitable for their set-up and should not buy it just for the sake of acquiring the latest technology. Cost analysis of the equipment is essential."

The other important aspect is improving the utilisation of the equipment. One such method to optimally utilise the equipment is time-specific charging. If the hospital is doing 10-20 CT scans in daytime, instead of keeping the equipment idle at night, optimum use of it may be made by offering discounts to patients utilising the equipment in that period. Yashoda Group of Hospitals strategically keeps all high-end diagnostic equipment busy. "We have three hospitals, hence our service staff plans all appointments in such a manner that all our three MRI machines will be utilised all the time. We offer discounts during non-busy timings (night time). Though emergency cases will be given first priority, we shuffle inpatients and outpatients also. If required, we arrange free transportation to our alternate branch. Instead of 30-40 MRIs per day, we try to make it 50-60," shares Dr G Surender Rao, Executive Director, Yashoda Group of Hospitals, Hyderabad.

The other approach which has greatly benefited KG Hospital is directly sourcing equipment from Original Equipment Manufacturers (OEM) instead of dealers, distributors, agents, middlemen and other such sources. Middlemen/ distributors source equipment from OEMs, put their seal on them and market them, at higher prices. Hence, the buyers, i.e. the hospitals, end up paying more. After realising this, and sourcing certain equipment directly from OEMs, KG Hospital has managed to buy for 20 per cent less. Cost can be cut through negotiations with vendors.

Direct Sourcing

Kolkata's AMRI Hospitals has achieved cost efficiency by resorting to good negotiations with vendors of capital equipment. One of the most important cost components of any hospital is interest and depreciation on capital equipment. Normally, it is 22 per cent of the capital investment (12 per cent interest and 10 per cent depreciation). "For some equipment it is more and for some it is less. Therefore, we decided that if we can do a major saving in purchase of the capital equipment, it will be 22 per cent perpetual saving every year on the capital cost," explains DN Agarwal, Executive Director, AMRI Hospitals. AMRI began negotiating hard with the vendors of medical equipment. Before doing so, it pulled the requirement of all its hospitals. "Since the volume was more and there was enough margin with the equipment suppliers, I could reduce rates from the last purchase by at least 30-40 per cent," explains Agarwal. The essence of negotiation, however, was in offering good payment terms and higher volumes to the vendors. One of the most significant negotiations which AMRI did was demanding two years of warranty from the vendors instead of universal one year guarantee. This has resulted in a saving of about eight per cent of the capital investment, as normally vendors charge about 7-10 per cent for all-inclusive maintenance.

Man Management

Manpower, which is the most crucial as well as expensive area of healthcare (accounting for 40 per cent of the total revenue), requires special attention. The general tendency to seek additional manpower makes hospitals vulnerable. In such a scenario, multi-tasking has rescued hospital managements. "An X-ray technician can also be used to do CT and ultrasound. Hence, at the time of recruitment, he can be recruited as a technician in radiology department rather as just an X-ray technician. For multitasking, the hospital should take continuous training seriously," opines an industry expert.

Analysis of job responsibilities to determine over-staffing and then looking for creative ways to reorganise is the key. In BGS Global Hospital, Bangalore 20 to 30 per cent staff is multi-skilled. "As male nurses in our Hospital can also drive vehicles, we utilise their driving as well as nursing skills as required. Similarly, front office staff besides welcoming patients can also prepare discharge summaries," says Feroz Ali, General Manager, BGS Global Hospital. "Organisations should do a exhaustive department-wise manpower analysis, hire the right person for the right job, calculate employee productivity and ensure with proper job description of key result areas that the employee delivers maximum productivity," opines Dr Murthy.

Gaining Efficiency

Hospitals rely extensively on IT implementation and automation for greater efficiency in processes. Hospitals like Sir Gangaram Hospital, New Delhi and CMC, Vellore have brought in automation with pneumatic tube transportation. In Sir Gangaram Hospital, pneumatic tubes are installed in the pharmacy, labs and the ICUs and OTs from where most samples originate.

Jaslok Hospital, Mumbai, has spent almost Rs 3 crore in computerisation. The Hospital has implemented ERP to manage all the store supplies online, cutting down on excess procedures, time, manpower and ultimately cost. Although partial computerisation of Sir Gangaram Hospital was being done for the last 20 years, the system was not tightly integrated and its various modules did not communicate completely with each other. Its two main shortcomings were an absence of a clinical module and a lack of continuity of a medical record across multiple visits of the patient to the Hospital. "This led to frequent repetition of medical tests as well as imperfect medical care due to non-availability of previous medical reports," explains Dr Karanvir Singh, Consultant Surgeon, In-charge, HIS implementation, Sir Ganga Ram Hospital. "We had to be careful to choose a company which would remain viable and provide support to the software for the next couple of decades (the estimated life of the software). MedTrak (TrakHealth, Australia) met these requirements," states Dr Singh. The actual benefits accrue from improvement in patient care, following better availability of patient care information to the care providers.

Energy Saving

Almost all hospitals today are adopting different techniques of energy conservation like solar heating system and water treatment plants as well as new technology to cut energy usage. Jaslok Hospital's electricity bill had shot up to Rs 60 lakh a month due to Low Tension (LT) transformers. The Hospital has now decided to switch to High Tension (HT) transformers for which it invested Rs 2 crore. With this shift, their electricity bill will diminish by 50 per cent. New hospitals are also upbeat about Building Management System, a computer programme usually configured in a hierarchal manner to control, monitor and manage all the equipment installed in the building, including heating, ventilation, cooling, security and lighting.

KG Hospital does not believe in central air-conditioning. Split, window and centralised ACs have been installed in all the operation theatres, ICUs, and CCUs of the Hospital as required. "Central air-conditioning would have required at least Rs 5 lakh per month on electricity. To obviate this, we have installed local air conditioners (window ACs) wherever needed," shares Dr Bakthavathsalam. When the atmosphere is cool and the ACs are not needed, they are switched off. This is also true when the departments are closed. Non-centralised air-conditioning is saving around Rs 25 lakh annually.

Coimbatore-based Kovai Medical Center and Hospital (KMCH) deployed solar heating and banished geysers and hot water boilers as a measure to cut electricity consumption. "We used to pay about Rs 17 to 18 lakh per month on electricity. Now, we have put up a solar plant and are able to save Rs 20,000 per month on electricity alone. We save about Rs 5-6 lakh every year by employing a solar heating system," shares UK Ananthapadmanabhan, President, KMCH.

CMC implemented zero waste disposal system and a sewage treatment plant three years ago considering the constraint of water in Vellore, which has brought down the expenses on water for the hospital. "The waste water is treated, recycled and used in our toilets," explains Dr Chandy.

Changing Mindsets

At Healthcare Global, the monthly Management Information System identifies the problem areas. In KG Hospital, teams were formed from each department. Team leaders were made responsible to ensure that the department under their charge implemented chosen cost cutting measures. Deadlines were fixed to ensure accountability of the people working on the plans. "Periodic interactions and meetings with the employees helped me to convince them for the need for cost cutting at all levels," shares Dr Bakthavathsalam. According to experts, major difficulties that all hospitals face are lack of professionalism, poor attitudes and above all improper protocols and processes. "These can be rectified by counselling, training and preparing standardised protocols and processes," opines Dr Murthy.

Detailed discussion with the users is also crucial to encourage the acceptability, usage and their contributions to bring down costs, believes Dr Rao. Extensive training wherever technology is introduced, and communication of the impact made by the users in cost containment can make the measures more effective.

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