Comprehensive

Performance
Management in the
Operating Room
Synopsis
A clearly defined method for measuring and analyzing operating room (OR)
processes provide a common language for focusing management’s attention
on areas of variability that can be eliminated. But hospitals must also assess
OR performance against multiple financial and clinical quality metrics to
achieve continuous improvement in patient outcomes and profitability enter-
prisewide. This project is a collaborative effort by McKesson Information
Solutions and the Healthcare Financial Management Association.

The Do Not Enter warning on the double doors of the
operating room not only has kept out unauthorized per-
sonnel, but also has impeded the reengineering efforts
many hospital departments have undertaken to reduce
the cost and variability of care. Clinical pathways and
process improvement initiatives typically have bypassed
the OR because workflow was considered too complex
to track, and the various stakeholders—surgeons,
anesthesiologists, nurses, and administrators—were
too diverse in their agendas to reach consensus on
what to improve.
But with surgical costs for some cases increasing
an average of 4.1 percent and payment declining by
4.2 percent,1 combined with intense competition among
hospitals for high-dollar surgical cases, executives
are scrutinizing their key profit center for cost and out-
comes variability to better manage existing resources,
minimize waste, and optimize per-case revenue.
The challenge for hospitals lies in collecting enough
in-depth and real-time data from the OR and making
it readily accessible to hospital management. Often
administration doesn’t receive meaningful data from
the OR, so decisions are made in reaction to anecdotal
evidence from surgeons and staff. Moreover, data that
may show, for example, that the OR’s on-time starts are
below a national benchmark may not uncover the root
causes of the problem, such as that certain surgeons
are chronically late, patients are missing tests, or
supplies haven’t been ordered at the right time.
Further, OR performance data typically have not been
integrated with data from other areas of the hospital,
such as patient accounting, clinical outcomes, medical
records, materials management, and general-ledger
information systems. Yet this step is crucial for creating
measures that provide enough information for strategic
planning, budgeting, and improving OR and enterprise
profitability. For example, quantifying late starts by
surgeons isn’t a useful measure unless management
can tie it to net income per surgical case in order to
predict the revenue that will result from increasing
the volume of surgical cases. And if a process improve-
ment initiative results in patients moving through the
OR faster, management needs to anticipate increased
staffing needs in the ICU for higher occupancy and
adding nurses on the floors to accommodate additional

1 Surgical Services Reform: Executive Briefing for Clinical Leaders, Washington, D.C.: Clinical Advisory Board, 2001, p. 8.
surgical patients. Likewise, knowing margin per
case enables management to decide which surgical
procedures to increase, model the impact on every
department in the hospital, and determine whether
recruiting another surgeon will ultimately be profitable
for the hospital.
Performance and Quality Measures in the OR
Initiating process improvement in the OR requires
the development of measures that meet the criteria
identified by John Griffith and Kenneth White in their
book The Well-Managed Healthcare Organization as
follows: “They must be realistic and convincing to
the people using them. They must be valid enough
to identify real objectives, reliable enough to measure
actual change in performance, and comparable over
time to detect trends.” 2
Organizations should decide on a set of core indicators
to display on a scorecard for a comprehensive view
of performance. Core indicators are created from data
drawn from multiple areas of the hospital, such as
cost per procedure (financial system), infection rate
(outcomes), and OR utilization (OR management
system). For each core indicator reported, however,
there are multiple underlying performance measures
for which data are collected. For example, under the
broad metric on cost per procedure, there will be data
on fixed and variable costs, direct and indirect costs,
laboratory and pharmaceutical costs, and supply costs
delineated by item. Resource utilization per case
encompasses personnel skill mix and amount of time
spent in preoperative preparation and other stages of
surgery. A financial metric on margin per surgical case
also includes data on net income per case, reimburse-
ment per case, and payer information.

Example of Performance Measurement Example of Core OR Indicators

for Hip Replacement Core measures apply across various procedures and help
Each programmatic dimension requires several measures to indicate overall OR performance.
support decision making. All six dimensions must be managed
for process improvement to succeed. PERFORMANCE MEASURE
Inpatient Workload
DIMENSION HIP REPLACEMENT Outpatient Workload
Demand # patients referred Cancellation Rates Day of Surgery
% of all hip replacements to Day of Surgery Add-on Rates
citizens of community
% appropriate surgeries Start Time Accuracy – 1st Case of the Day**
delay for surgery Start Time Accuracy – Subsequent Cases**
Estimated Case Duration**
Cost/Resources OR time, hospital days, PT visits,
number of prostheses, etc. Turnover Time Inpatient
costs of physical resources Turnover Time Outpatient
age of operating theater and equipment Total Case Time Inpatient***
Human Resources # orthopedic surgeons Total Case Time Outpatient***
% workers that “recommend to others” Room Utilization 7:30 AM-3:15 PM
% aides trained in exercise Surgeon Satisfaction
Outputs/Productivity # procedures Patient Satisfaction
cases/surgeon Employee Satisfaction
$ per case Cost per Case (Labor)
Quality % walking at 6 weeks Cost per Case (Materials)
% care protocol met Cost per Case (Total)
accredited hospital facility Gross Revenue per Case****
Satisfaction % patients that “recommend to others” * Surgeon and staff satisfaction to be determined; patient satisfaction based
% referring physicians that on Press Ganey results
“recommend to others” ** Start time and duration accuracy based on +/- 15 parameter
# of insurer panel contracts *** Based on patient in to patient out time
**** Revenue per case reflects gross charge capture
Source: John R. Griffith and Kenneth R. White, The Well-Managed
Healthcare Organization, (Chicago: Health Administration Press, 2002).

2
2 Griffith, John R., and White, Kenneth R., The Well-Managed Healthcare Organization, 5th ed., Chicago, Illinois: Health Administration Press, 2002, p. 180.
A balanced scorecard displays key metrics against
performance goals so decision makers can readily
assess OR performance and identify problem areas.
A spreadsheet will work, but performance business-
intelligence software allows executives to quickly
assess performance through graphic displays and
provides links to databases to find causes for poor
performance. Some products monitor the data and
send an alert when performance falls below an
established threshold.

Choosing What to Improve

Many hospitals focus on improving efficiency in the
OR first, since the gains can be significant and it
paves the way for surgeons to eventually tackle more
difficult processes, such as rationalizing their supply
choices, standardizing intraoperative processes, and
evaluating whether the surgeries they are performing
are appropriate. 3
Hospitals report a high degree of variability in OR
operations, which presents numerous opportunities
for improving efficiency. For example, the industry
average for on-time starts is 27 percent, but the best-
performing ORs average a 76 percent on-time start. 4

Tracking Every Move in the OR at Abbott Northwestern Hospital

Finding where a surgical patient is at any moment is the scheduled surgery time, and if they miss the
easy at Abbott Northwestern Hospital in Minneapolis. deadline three times a month for two months, their
Staff and family members simply glance at monitors first-case scheduling privileges are revoked.
located throughout the surgery area. Families in
“Because of this change, we’ve been able to increase
waiting rooms know that the patient is now in the
our first-case on-time starts to 85 percent from
recovery room; surgeons completing medical records
27 percent,” says Terry Voigt, director of surgical
between cases know when they are needed in the OR;
and anesthesia services at Abbott Northwestern. “We’ve
nurses can see that the patient is being transported to
had comparable improvement for other processes, such
a floor; and staff at surgeons’ offices can tell if clinic
as case turnover time and room prep. Without adding
will be delayed. Besides getting surgeons to the OR
any additional staff, we’ve been able to increase our
on time, the monitors have dramatically decreased
surgical volume by approximately 12 percent.”
the need for phone calls and pages to track physicians’
and patients’ whereabouts. Abbott Northwestern mines its data warehouse to
create financial, quality, and productivity measures
Every choreographed movement is also tracked
for OR procedures to assess case costs, reimbursement,
and recorded within the OR. In the pre-op area, for
supply expenses, staffing models, length of stay, and
example, each of the five caregivers that must see
total inpatient costs on a regular basis. Armed with
the patient before surgery push a keypad at the bed-
that data, management can make strategic decisions
side when his or her task is completed. Each event
to pursue initiatives that are likely to produce high
is time-stamped, and an alert is given when the
margins and good reimbursement, such as building a
patient is ready to go into the OR. After looking at
center of excellence around surgical procedures like
the data, Abbott Northwestern created policies to
spine surgery. “We now do more spine surgery than
ensure that pre-op processes are completed on time.
nearly any other hospital in the country,” says Voigt.
Surgeons must see their patients 10 minutes before

3 Surgical Services Reform, p.vi. 3

4 Surgical Services Reform, p. 33.
 Efficient ORs report nonlabor costs per procedure
that are 17 percent to 28 percent lower than the
average OR. 5 Improvement initiatives might include:
•Developing start-time matrices for each specialty
adjusted for case complexity
•Eliminating waste by repackaging supplies
•Using orderlies instead of surgical nurses to
get supplies
•Reducing cost of supplies through product
standardization

Another approach is to begin improving processes

on procedures that generate the largest cost to the
hospital—high-volume surgical cases or those that
have the greatest variability in total supply costs,
length of stay, or post-op wound infections.

Variability in OR Procedures and Costs

The high degree of variability among ORs in processes and costs per surgical procedure demonstrates the
tremendous potential for improvement.

Total Costs for Laproscopic Cholecystectomy Total Turnover Time for Total Hip Replacement

$1,400 100

90
$1,200
80

$1,000 70
Supply & Labor Cost

60
$800
Minutes

50
$600
40

$400 30

20
$200
10

$0 0
All Facilities All Facilities
Supply Costs Setup to Prep
Labor Costs Cleanup

Source: OR Benchmarks, Inc. Source: OR Benchmarks, Inc.

5
4 Surgical Services Reform, p. 31.
Assemble the Process-Improvement Team The High Cost of Surgical Services
Any personnel that will be affected by a process- The OR generates 42 percent of patient revenue at the
improvement initiative should be represented on the average hospital.6 But it also accounts for a large share of
team. Core team members should include a hospital an organization’s expenses and resource demands and,
administrator, a finance professional, a surgeon, an thus, deserves rigorous managing to optimize profits.
anesthesiologist, a nurse, an IT staffer, and a represen-
tative from the risk management department who can
provide an institutional view of regulatory requirements. OR Total Expense as Percentage
of Hospital’s Total Expense
However, says John Hansman, region manager of man-
agement engineering for Intermountain Health Care,
urban south region, in Provo, Utah, “You have to be
sensitive to balancing the real work of surgery with
improving those processes.”

Define and Benchmark

ORs in facilities with 601+ beds

As a first step, the team should agree on how to define
the performance measures by reviewing internal and
external benchmarks. This may not be simple. Each
OR has processes unique to it so external benchmarks
may not always be a relevant measuring stick. And
solely using internal benchmarks may cause staff
to conform to an internal mean and not stretch for
optimal performance. Each hospital, therefore, should
examine best practices at top-performing ORs as a
starting point and then determine its own best practice.

Set Targets and Communicate 0 5 10 15

Them to OR Staff 25th percentile = 4.12%
Change is best dealt with incrementally, so goals 50th percentile = 5.38%
75th percentile = 7.11%
should be stated in terms of percentage improvement. mean = 5.33%
For example, set the goal of improving on-time starts
by 20 percent. The degree of improvement will be
Source: Solucient LLC HBSI ACTION®
determined by how aggressively your institution
embraces change. OR staff should be informed what
the best practices are and how they will be measured.

6 Surgical Services Reform, p. 5. 5

Collect the Data
The OR team can collect and analyze the data
manually, but relying on a time-strapped surgical nurse
to fill out data forms and other staff to run spreadsheets
often results in incomplete data and delays in spotting
problems. The best approach is to collect the data at
the time of care in a surgical management information
system so information is readily accessible for making
proactive process changes. Some of the more sophisti-
cated systems will page the anesthesiologist and
surgical team when the patient is ready in the OR,
monitor supplies and automatically reorder them,
track costs per case and generate a bill, and compile
variable costs and margins per case. 7 Core indicators
should be put on a scorecard, and the data should
then be collected consistently.
Integrate Data on Quality with
Operational Measures
An OR team that wants to standardize products for
leveraged purchasing power had better be able to
demonstrate to its surgeons that clinical outcomes
are just as good or better with the preferred vendors’
products. Likewise, surgeons’ case durations need
to be balanced against their patients’ length of stay,
complication rates, readmission rates, and overall
inpatient costs. Institutions that aggressively try to
improve financial margins without the assurance
of good patient outcomes will cause their surgeons
to defect.
Linking patient outcomes with operational performance
measures is a challenge for most hospitals that will
be easier to achieve when electronic medical records
become more widespread.
Report the Results
Data need to be available not only to hospital decision
makers, but also to the surgical nurses, technicians,
surgeons, and anesthesiologists. Surgeons’ natural
competitiveness often causes them to reduce variation
simply by looking at data they trust. Some hospitals
provide incentives for surgeons to change their
practices by letting them determine how the hospital
should invest a portion of the savings that resulted
7
6 Surgical Services Reform, pp. 72-73.
8 Clockwork Surgery: Hardwiring Efficiency into the Perioperative Process, Washington, D.C.: Clinical Advisory Board, 2001, p. 119.
Improving Operations Through
Clinical Initiatives
Problem:
When St. Agnes Medical Center, Fresno, CA,
embarked on a new initiative to fix a clinical
problem, the initiative also drove substantial
process improvement. Recovery-room nurses were
frustrated with the huge variability in the orders
they received to manage blood-pressure problems
in patients who had just undergone a carotid
endarectomy. Sometimes the 25 anesthesiologists
who handled these cases wrote orders, sometimes
the surgeons did, and, at times, no one did. Plus,
the physicians all used different drugs to treat
blood-pressure complications.
Solution:
By creating a standard set of orders for nurses
to follow and giving physicians a preferred list
of drugs, the hospital not only reduced stroke
and excess bleeding in these patients, but also
decreased ICU days by 3 percent and dramati-
cally cut the time patients spent in the recovery
room. “We got physician buy-in because they
saw this initiative as a way to improve care,” says
Paula Jordan, surgical services case manager.
Success Rate:
Ninety-five percent of the physicians who do
carotid endarectomies now use the order set.
from their process improvements. Other institutions
are more heavy-handed and publicly post on-time start
rates and average delay times by individual surgeon. 8
At Abbott Northwestern Hospital, surgeons must main-
tain a 75-percent utilization rate of their surgical block
time or they lose the block time.
The best results can be gained from gradual, consistent
adherence to change. Staff who embrace process
change too quickly and those who have to be dragged
to make changes both present problems, according to
John Hansman of Intermountain Health Care. “Those
who want to jump on the bandwagon right away have
to be slowed down because there is a line of people
who have to be pulled along,” he says. “And organiza-
tions have to tell those who are kicking and screaming
against change to decide whether they’re coming along
with the institution or not.”
Financial Impact of Process Improvement in the OR
The biggest gains require the most systemic behavioral and organizational changes, such as standardizing
supplies and creating clinical protocols to lower costs and improve outcomes.

Savings as a Percentage
Improvement Opportunity Examples of Total Operating Expense

• Clinical pathways
• Product standardization Best
• Cost per procedure benchmarks 1.25% – 3.0%
Practice
• Operational best practices

• Streamlined processes
• Reduction of manual Process Redesign 0.5% – 1.5%
activities

• Contract optimization
• Inventory control Basic Process Improvements .25% – 0.5%
• EDI optimization

Savings Assumptions:
10% – 20% savings potential from Med/Surg supplies based upon provider experience
10% – 15% savings potential from supply-related labor based upon Arthur Andersen study validated by customer experience

Source: McKesson Corporation

Next Steps: Using OR Performance Data Or say that the balanced scorecard shows that the OR
to Make Strategic Decisions is making steady progress in achieving its target goal
of 85-percent utilization. Now, instead of waiting until
A balanced scorecard that displays core performance
surgeons and patients are unhappy because they can’t
indicators against target goals allows management to
schedule their surgeries and staff is overworked,
monitor at a glance how well the hospital is doing at
administration can proactively decide to build another
any point. The scorecard also identifies areas in which
OR to accommodate the increase in surgical cases.
decisions need to be made to improve performance
or to modify operations as a result of changes. For
After developing performance measures and identifying
example, an administrator sees that cost per surgical
potential process improvements, OR staff can begin
case has increased incrementally for eight months. He
taking concrete steps to standardize the use of supplies,
drills down into the data and finds that cochlear and
reduce the number of vendors, and streamline work-
spinal implants are driving up costs. Digging deeper,
flow. The next article in this series on OR productivity
he looks at payment and contract terms for the implant
will cover strategies for improving OR scheduling,
vendors. Only then does he have the right information
reducing downtime, using clinical staff effectively,
to decide whether to renegotiate payer or vendor con-
improving on-time case starts, increasing patient
tracts, further reduce the number of implant vendors,
charge capture, matching patients’ needs with types
stop offering the surgery, or recruit a surgeon in a dif-
of implants, and holding surgeons accountable for
ferent specialty to help defray the costs of a procedure
supply selections and costs.
the hospital has committed to offer the community.

7
 This educational supplement sponsored by

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