Performance measures for Hospital business

Hospitals are cost intensive business, both in capital as well as operational expenditure. The
article ‘How much does it cost to run a hospital?’ gives a detailed understanding of
different cost heads with their proportion. In addition, rising competition and increasing
regulations are just making the hospital business even more difficult. For a hospital business
manager, it is crucial to closely monitor the business performance of the hospital. Following
are the list and description of some key measures that gives a good understanding of
hospital’s business performance.

BED OCCUPANCY RATE (BOR)  

This is by far the most commonly quoted measure to describe how well a hospital is doing.
BOR gives a gross idea about how well the hospital’s bed capacity is being utilized. BOR is
the percentage of available beds that is occupied by admitted patients at a given point of
time. BOR can also be calculated for a period (like for a month), in which case, it is average
BOR for that period

Formula for calculating BOR for a given point of time:

Total number of admitted patients at a given point of time   x 100
Total functional beds available at that point of time

Functional beds are the beds on which a patient can be admitted. Beds of emergency ward,
day care ward and beds currently not in a condition to admit patient should not be counted in
the functional beds.
Point of time can be current time or any date and time on which BOR is being calculated.

Formula for calculating BOR for a period:

Total patient days in a period                                       x100
Total available bed days in the same period

Total patient days can be calculated by adding the length of stay of all patients during the
period under calculation. Patient days that were spent outside the period under calculation
should not be counted. Alternatively, sum of daily census of hospital (total number of
admitted patients on a given day) for each day in the period can be done to arrive at total
patient days.
 Total available bed days can be calculated by multiplying the number of functional beds in
the hospital with the total days in the period. Adjustment should be made for beds that were
added/removed during the period.

Interpretation: A higher BOR reflects good performance and vice-versa. However, very high
BOR (close to 100%) may not be good, as it indicates that hospital is overcrowded and over
utilized, which may eventually lead to poor maintenance of facility and poor patient
experience.

To get a better understanding of bed utilization, BOR should also be calculated separately
for various categories of beds; some important break-ups of BOR are as given below

         BOR of various categories of beds (general ward beds, single room, twin sharing, deluxe
etc.) - helps in understanding utilization pattern of various kinds of beds

         BOR of ICU (also called as ICU occupancy rate) – ICU beds being much more costlier to
build and operate compared to general beds, it is essential that ICU occupancy are
measured and monitored separately

         Speciality-wise BOR – In hospitals where the bed strengths are divided amongst various
specialities, specilaity-wise BOR must be measured

BED TURN-OVER RATE (BTR)

BTR is a measure of how many times there is change of patient per bed. It indicates how
well the hospital beds are utilized. Formula for calculating BTR is

BTR = Number of discharges and deaths in a given period

                Number of functional beds during that period

BTR of hospital is affected by average length of stay (ALOS). If ALOS is high, BTR will be
low and vice-versa. Hence, comparison of BTR can be made between hospitals having
similar ALOS.

Interpretation – High BTR generally indicates better utilization. It means patient turn-over is
high and hospital is treating more number of patient in a given period of time. BTR along-
with BOR gives a very good understanding of how well hospital’s beds are being utilized.
BED TURN-OVER INTERVAL (BTI)
BTI is a measure of average length of time that elapse between discharge of one patient and
admission of next patient on the same bed, over a period of time. BTI is an efficiency
parameter, that indicates how quickly the bed is ready to admit next patient.

Formula for calculating BTI

BTI = Available functional bed days in a given period – Occupied bed days in the same
period
                                                Total patient discharged during the same period

The formula basically calculates vacant bed days and divide it equally amongst total number
of patient. An example for calculating BTI is given below.

A hospital has 100 functional beds. In last one month total patient days (i.e. sum of admitted
patient in each day for last one month) has been 2235. Also, a total of 340 patients were
discharged during last one month. Based on this BTI for last 1 month can be calculated as
Available functional bed days in last one month = 100 x 30 = 3000
Therefore BTI = (3000 – 2235) / 340 = 2.25 days. This means on an average each bed has
received next patient after 2.25 days post discharge of the previous patient.

Interpretation –  At a given BOR, the BTI indicates how efficient hospital’s system is in
readying the bed for next patient. A short BTI indicates better efficiency. However, very short
BTI should be looked at cautiously as studies has shown that short BTI is linked to increase
in hospital acquired infections such as MRSA.

AVERAGE LENGTH OF STAY (ALOS)

ALOS is a very common performance measure which is used not only for business
performance but also for clinical quality and infection control. ALOS is average duration for
which a patient remains hospitalized.

Formula for calculating ALOS

ALOS = Sum of Length of stay (LOS) of all discharged (including death) patient during a
period
                                                Total number of discharges plus deaths
 The LOS of each patient should be calculated from day of admission till day of discharge.
Day care patient or patient getting admitted and discharged on same day should be
excluded.

Condition specific ALOS – As LOS of a patient heavily depends upon the disease
condition, calculating condition specific ALOS has much more significance instead of
calculating gross ALOS. Condition specific ALOS can be calculated by adding the LOS of all
patient with similar condition and dividing the sum by number of deaths and discharge of
patient with that condition. Some examples of conditions for which ALOS should be
measured are

         ICU specific ALOS

         ALOS of patients with a specific diagnosis

         ALOS of paediatric patients

         ALOS of obstetric patients

         ALOS of a particular speciality

Interpretation – For ALOS to make sense, it must be compared with some benchmark
ALOS of that condition. Comparison can be made through historical ALOS or with other
hospital’s ALOS. Generally a reducing ALOS indicates better performance as it indicates
that beds get free sooner and become available for admitting next patient.

OPERATION THEATRE (OT) UTILIZATION RATE

OT perhaps is the most expensive facility in a hospital. It is also highly costly to operate.
Hence, if OT are not utilized for surgeries, hospital may find it extremely difficult to manage
the expenses. OT utilization rate should therefore be an important measure for monitoring
hospital’s business performance.

Formula for calculating OT utilization rate

OT utilization rate = Sum of length of time (in hours) of all surgeries performed during a
period  x 100
                                                Total OT time available during that period

Length of time of a surgery should be calculated as the difference between the time patient
was wheeled in the operation room and the time when patient was wheeled out
Total OT time should be calculated as the product of number of operation room, number of
working days in the period and total working hours for the OT in a day.
Example – A hospital performed 100 surgeries in one month and the sum of length of all
100 surgeries was 280 hours. The hospital has 4 operation room which remains functional
from 9:00 am to 4:00 pm every day. Also, total working days in the month were 22 days
Total OT time can be calculated as 4 x 7 x 22 = 616 hours
Thus OT utilization rate will be 280/616 x 100  = 45.45%

Interpretation: Higher OT utilization rate indicates better performance. However, very high
rate should be taken cautiously, as it may lead to effects such as higher infection rate. Low
OT utilization rate may be either due to less number of patient for surgeries or because of
inefficient system in OT.

EQUIPMENT UTILIZATION RATE

Like OT, there are some equipment that are of high cost and needs to be utilized for
achieving break-even. These equipment include machines, like CT scan, MRI scan, PET
scan etc. Utilization rate of each of these equipment must be measured separately.
Formula for calculating utilization rate of equipment such as CT-scan and MRI

Utilization rate = Total number of tests performed in a particular period                 x 100     

                                Maximum number of test that can be performed in that period

Maximum number of test that can be performed should be estimated for each equipment
separately. This can be done by dividing total functional time available for the equipment
with the average time for performing one test.

Example: A MRI scan machine at one hospital can perform one scan in 30 minutes. It
remains functional for 8 hours in a day. Thus in one day the MRI machine can perform 16
scans. If the hospital has perfomed, lets say, 185 scans in last 22 working days. MRI scan
utilization rate can be calculated as 185/(16 x 22) x 100 = 52.5%

Interpretation: While high utilization indicates good performance, this measure should be
seen in light of other measures such as BOR and daily OPD workload. The utilization rate
must increase with increase in workload data.
OPD TO IPD CONVERSION RATE
OPD is generally considered as shop window of the hospital and is not a major revenue
generating department. OPD however functions as a feeder to IPD. Hence, to monitor how
much of  OPD patients are converting into IPD, this measure should be used.

Formula: Number of patient admitted through OPD in a period  x 100

                                Total number of OPD patients
Patients admitted through OPD are those who were examined in the hospital’s OPD and
were subsequently admitted.

Interpretation: While a higher rate is a good performance, it is better to track the trend of
OPD to IPD conversion. The rate is generally affected by poor patient satisfaction, high cost
of IPD or low motivation of doctor’s to admit OPD patient.

OPD FOLLOW UP TURNOVER RATE

This is a measure of patient satisfaction and patient loyalty which is one of the key
determinants of a hospital business. A high follow up turnover rate indicates that patients are
satisfied and are willing to continue their treatment in the hospital. It can be calculated as

Number of patients who came back for follow up in OPD in a particular period     x 100
Number of patients who were called for a follow up in OPD

To calculate this indicator, it is necessary that hospital has a system of recording who have
been called for a follow up and on what date. The system should also be able to identify and
count those patients who came for follow-up. You may also like to read the post of ‘Making
of a loyal customer’

PROPORTION OF NEW PATIENTS REFERRED BY

EXISTING PATIENTS
Hospital’s business thrives on word of mouth publicity. If an existing patient do not
recommend the hospital, it is very unlikely for the hospital business to succeed. Hence,
hospital’s management must keep a track of how much do their patients recommend the
hospital to their known ones. One measure for this can be proportion of new patients
referred by existing patients. To calculate, this measure, hospital must have a system to
collect data on who recommended the hospital to a new patient. The formula to calculate this
measure is

Number of new patients registered who were recommended by an existing patient           x

100
Total number of new patients registered in the period

The word of mouth in today’s context is getting replaced by online rating and reviews. It is
becoming increasingly necessary for hospital’s to manage their online image. The post on
‘Avoiding poor online rating of your hospital’ describes what factors leads to lower rating
by patients.

PROPORTION OF WALK-IN TO REFERRED PATIENT

This measure describe from where the patient comes from. There are basically two major
source for a hospital to get patient. Patient can either be a walk-in or is referred by a general
practitioner/other doctors.

Formula for calculating: Number of patients referred by other doctor in a period

                                                Number of walk-in patient in the same period

To get data for this measure, hospital must collect data on referred/walk-in for every new
patient coming to the hospital. This registration form may be used for collecting such data

Interpretation: Depending upon the marketing strategy of the hospital, this indicator will
have different meaning to different hospital. For tertiary care hospitals such as Cardiac,
cancer, Neuro, referral patients are the most important source and hence the proportion
should be higher. For a general hospital providing secondary care services, dependence on
referral may not be good for business. They should try to get more walk-in patients. Hence
the a low proportion in this case would be beneficial.
(Read – How to create a winning hospital marketing strategy?)
 

DISCHARGE AGAINST MEDICAL ADVICE (DAMA)

RATE
DAMA is an important indicator of whether or not patients are accepting the hospital for
treatment. DAMA can happen largely due to patient dissatisfaction or higher cost. There
could be few DAMA that can happen due to patient’s personal reasons, but monitoring
DAMA rate can give an idea about how patients are finding the hospital. DAMA rate can be
calculated as,
DAMA rate = Number of patient who went DAMA in a period       x 100
                                Total number of discharges in the same period

Interpretation: Some patients will go DAMA despite best efforts of the hospital, but it should
be monitored that the rate is not showing an increasing trend. Collecting additional data on
reasons of DAMA from the patients may help in taking corrective measures

PATIENT SATISFACTION RATE

Patient satisfaction is not only a quality measure but also an important business measures.
Satisfied patients are more likely to create a positive word of mouth publicity, which helps the
hospital in attracting more new patients. There are various methods of estimating patient
satisfaction rate, and each has its own merits and limitations. Most common method of
getting patient satisfaction rate is through structured feedback from patient at the time of
discharge. It is essential to obtain feedback through right patient feedback form and using
right method.

COST PER PATIENT DAY (CPPD)

Monitoring cost is essential to hospital business, as explained in the post ‘How much does
it cost to run a hospital?’. Cost of running a hospital is affected by how many patients days
has been catered by the hospital. Hence, finding out per patient day cost helps hospital
management to understand, if they are expenditure are in line with the workload.

Formula: CPPD = Total expenditure of the hospital in a year

                                                Total patient days in that year
As many cost occurs on annual basis, this measure should better be calculated on an
annual basis. Total patient day can be calculated by sum of LOS of all patients or by
multiplying the number of patients by ALOS of the hospital.

Interpretation: A lower CPPS, indicates good efficiency. For a better understanding, fixed
costs such as staff salary, insurance premium, AMC/CMS fee etc. can be excluded, as they
are not affected by patient days.
REVENUE PER PATIENT DAY (RPPD)
Similar to CPPD, it is also necessary to monitor if adequate revenue is being generated for
each patient day. This can be calculated by the formula,

RPPD = Total revenue of the hospital in a year

                Total patient day in that year

As some payments may come late due to insurance or third party payment, calculating this
indicator in a broader time-frame, such as annually, will give more accurate result.

Interpretation: RPPD along with CPPD gives a good understanding of profitability. A rising
CPPD and falling RPPD is generally not a healthy sign. For better assessment of RPPD,
non-patient revenue, should be excluded.