If the airlines can do it...

By Jeff Terry

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To overcome pressure from the 3 Rs - reimbursement, reform, and readmission - we'll have to follow the airlines to a new level of utilization.

Prior to 1993 capacity utilization of US airlines hovered between 57% and 63%.  That's about where hospital utilization is today.  Then, from 1993 to 2007, the airlines increased their utilization to 80%.  In order to serve our communities and maintain our financial health, hospitals must follow suit.  

For hospitals, the literature suggests that optimal utilization is 85%.  By this standard, 79% of U.S. hospitals are significantly underutilized.  Why does this matter?  It matters because hospitals - like airlines and newspapers - are fixed cost businesses.  As such, utilization is the most important determinant of financial success.  

How did the airlines transform utilization across their industry?  What changed?  Two factors are worth noting: economics and information.  First, the early 1990s saw the bankruptcy of several large airlines including Eastern, Braniff, TWA, and Pan Am.  Watching these failures reinforced the need to better manage capacity in the mind of executives.   Second, the rise of the Internet transformed the nature of airline reservations by providing previously unavailable information  to decision makers (passengers) at the moment of the transaction.  In the paper footnoted below, Dana and Orlov trace a direct correlation between Internet penetration in major cities and capacity utilization in flights serving those cities.  In other words - with the ability to investigate options in real time with accurate information, passengers made better decisions about using capacity.  As utilization increased, so did profitability.  

That's interesting, but is it important?  I think so.  Healthcare is obviously more complex than air travel - both for fundamental reasons (i.e., caring for the sick) and because a bed is not a bed in the way that a seat is a seat.  Nonetheless, the parallels between the airlines' and our capacity challenge are striking.  Ref economics, the financial pressure on hospitals seems to increase endlessly.  While much of the future remains unclear, a few things are certain:  more patients will come into the system and we'll be paid less per patient.  Better utilization is the most effective response to that pressure - just as it was for the airlines.  

Ref information, we will only be able to reach and sustain a higher level of utilization (i.e., a "new normal) when better information is available to decision makers at the time of bed placement.  In the case of the airlines, passengers self select their seats.  In our world, those decision makers are in admitting, scheduling, the bed desk, the units, etc.  In order to follow the airlines to 80% utilization and then beyond, they must be armed with real-time, accurate information about the current and predicted status of the hospital.  For example, do I need to hold this bed for a scheduled surgical admission or should I release it for an ED admission?  In the absence of information, I'll likely hold it.  But, if I know that my surgical patient is still in pre-op, and that there will be ample beds coming available within the next four hours, I can confidently release the bed to the ED.  Better information enables better decisions, which creates more capacity.  

How do we get there from here? Hospitals must take a two-step approach to optimize patient care capacity management.  First, we must achieve optimal utilization.  Then, we must redefine optimal.  The airlines made the leap by improving their operations and then watched as the Internet spread and made use of those improvements.  For hospitals, a similar two-step approach is required.  First, we have to address the fundamental problems of patient flow: discharge management, the admissions cycle, block schedule management, ICU governance, readmissions, etc.  Then, we have to deploy bed, ED, OR, and ICU management systems that enable the type of real-time decision making described above.  Only then can we move optimal operating capacity to beyond 85%.  A few providers have begun the journey.  Many others have not.  For some, that's because they "feel" full.  For others the need is clear but the path is not.  Let's hope that we collectively overcome both the real and perceived issues to make our great leap forward in utilization in less than the fifteen years it took our friends in the airlines.  

1.  Dana, James Jr, Orlov, Eugene.  Internet Penetration and Capacity Utilization in the US Airline Industry.  June 26, 2008.


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