Calculating a Potential Increase in Hospital Margin for Elective Surgery by Changing Operating Room Time Allocations or Increasing Nursing Staffing to Permit Completion of More Cases: A Case Study

Abstract

Administrators routinely seek to increase contribution margin (revenue minus variable costs) to better cover fixed costs, provide indigent care, and meet other community service responsibilities. Hospitals with high operating room (OR) utilizations can allocate OR time for elective surgery to surgeons based partly on their contribution margins per hour of OR time. This applies particularly when OR caseload is limited by nursing recruitment. From a hospital’s annual accounting data for elective cases, we calculated the following for each surgeon’s patients: variable costs for the entire hospitalization or outpatient visit, revenues, hours of OR time, hours of regular ward time, and hours of intensive care unit (ICU) time. The contribution margin per hour of OR time varied more than 1000% among surgeons. Linear programming showed that reallocating OR time among surgeons could increase the overall hospital contribution margin for elective surgery by 7.1%. This was not achieved simply by taking OR time from surgeons with the smallest contribution margins per OR hour and giving it to the surgeons with the largest contribution margins per OR hour because different surgeons used differing amounts of hospital ward and ICU time. We conclude that to achieve substantive improvement in a hospital’s perioperative financial performance despite restrictions on available OR, hospital ward, or ICU time, contribution margin per OR hour should be considered (perhaps along with OR utilization) when OR time is allocated.