Operating Room Costs: Labor vs. Materials

Introduction

• The OR remains a major driver of hospital costs and resource utilization.³
• OR costs are highly variable both within and across health systems, with some reports estimating that one minute of OR time costs as little as $7, while others estimate it costs as much as $100.¹ This variability highlights significant heterogeneity in healthcare costs between hospitals and regions. Understanding cost structure and system-level factors enables identification of targets to improve value in perioperative care.
• Direct and indirect costs contribute to surgical care expenditures; understanding these categories is crucial to identifying cost control strategies.
• Expansion of anesthesia into non-OR settings can introduce unique constraints, such as remote locations, variable staffing, and resource limitations, that can affect cost, efficiency, and access.²

OR Cost Structure

Direct vs Indirect Costs

• Cost can be viewed from three perspectives: what the hospital spends, what the patient pays out of pocket, and what a health insurer pays. In this summary, “cost” refers to hospital expenditures required to deliver care.
• Direct costs:
  • Direct costs are costs required to provide a clinical service and account for the majority of OR spending, with labor making up the largest portion. Simply put, direct costs are the cost of doing each individual case.¹
  • Examples of direct costs include staff wages, OR supplies, and OR equipment.
• Indirect costs:
  • Indirect costs are overhead expenses that support clinical operations. Indirect costs exist regardless of case volume. Most simply, indirect costs are the cost of keeping the OR open.
  • Examples of indirect costs include administrative staff, facilities, utilities, IT infrastructure, legal services, and other support services.¹
• Figure 1 breaks down the cost of each OR minute into its direct and indirect components.

Fixed vs. Variable Costs

• Fixed Costs
  • Fixed costs do not change with the complexity, duration, or number of procedures performed. These costs remain stable even if fewer procedures are performed. Most total hospital expenses are fixed.⁴
  • Examples of fixed costs include staff salaries, buildings, capital equipment, maintenance, hospital security, and hospital utilities.⁴
• Variable Costs
  • Variable costs scale proportionally to service volume.
  • Because fixed costs dominate expenditure, reducing variable costs alone has a limited impact on total spending.
  • Examples of variable costs include overtime labor, locum fees, evening/weekend premiums, medications, disposable supplies, and patient-care consumables.⁴
  • In low-resource environments, variable costs can become a dominant barrier when supply chains are unstable.⁴
• Fixed costs are primarily the costs of keeping the ORs open and available, and variable costs are the cost of doing each case.⁴
• Marginal Cost
  • Marginal cost is the incremental cost increase of adding an additional unit of service. In the OR context, this might be the cost of doing one additional case or keeping the OR open for one extra hour. Since the majority of OR costs are fixed, the marginal cost of doing a further case is often less than the average cost, but may depend on the time of day when the additional case is performed.⁴

Labor Costs

• Labor costs include wages, benefits, overtime, night and weekend premiums, training and education expenses, and per diem and locum coverage, and are among the main drivers of OR expenses.¹

Supplies and Materials^1,3

• Variable disposable supplies include medications, drapes, sterile supplies, airway equipment, and procedure-specific single-use kits.
• Fixed material costs include OR tables, anesthesia machines, and equipment maintenance.
• Non-OR Anesthesia (NORA) considerations include limited storage (extra equipment often required), nonstandardized equipment layout, and additional backup materials given the distance to the main OR.²
• In resource-limited settings, high fixed costs and restricted budgets can magnify the impact of inefficiencies in workflow and supply waste. Awareness of the cost structure is essential to maintaining access to surgical care, especially in resource-limited settings.

Ambulatory Surgery Costs

• An estimated 70% of surgeries in the United States are performed in the outpatient setting.5 Specialties that account for the majority of these cases include orthopedics, ophthalmology, plastic surgery, and otolaryngology.⁵ Performing surgery at an ambulatory surgery center (ASCs) can often provide a substantial cost savings over hospital-based outpatient surgery with comparable outcomes.^5,6
• Many of these cost savings are achieved through reductions in fixed and indirect costs. ASCs require the same equipment and emergency supplies as hospital-based surgery, but can realize cost savings through more efficient staffing, reduced facility costs, less need for capital equipment, and simpler, less-expensive ancillary and support systems.^2,6
• However, careful patient and procedure selection is required to achieve the greatest cost savings. Modern ASCs allow the treatment of more medically complex patients in an outpatient setting. Still, these patients are more likely to require overnight observation and 30-day readmission, both of which can offset any cost savings.^2,6
• ASCs depend on patients’ predictable and efficient recovery. Increasing medical complexity can lengthen recovery time and increase the resources needed to provide care, raising overall costs safely.²

Strategies to Improve Efficiency and Reduce Costs

Drivers of Cost

• Staffing inefficiencies might include delayed case starts, extended hours due to inaccurate scheduled case durations, prolonged room turnover, and mismatches between staffing and case demand.^2,4
• Supply inefficiencies might include opening excessive or unnecessary sterile equipment, overstocking, leading to inventory expiration, disorganized stocking or supply chain, and poorly optimized surgeon preference cards.^2,4
• Given that labor costs make up a large portion of OR costs, minimizing inefficient use of staff time optimizes the use of fixed labor dollars. This might include focusing on case turnover or case delays to maximize the productivity of fixed labor dollars.^2,4
• Non-OR anesthesia (NORA) inefficiencies include variability in setup time, staffing for monitoring and transport, and backup resources due to the distance from the main OR.^2,4

Cost Reduction Strategies

• Labor costs make up the largest modifiable cost category. Still, any proposed time-saving interventions must be carefully considered within the OR staffing model, as reducing specific components of case duration without reducing the total procedure duration will have minimal effect on labor costs, since the majority of staff must be present for the entire procedure.^1,3
• Labor cost savings can primarily be realized by optimizing case start, case duration prediction, and turnover time to minimize the need for unnecessary overtime or off-hours premium staffing costs. Optimizing block time to distribute cases within permanent staff schedules evenly can also reduce the need for expensive locums or per diem staffing.^1,3
• Supply costs make up a smaller share of OR costs but are readily modifiable and directly under surgeons’ control. Cost reduction strategies might include stratifying each case type by cost across surgeons to see whether certain surgeons perform procedures at a lower cost. Once positive surgeon outliers are identified, their supply choices could be compared with those of the more costly surgeons to see whether supply choices can be optimized across surgeons to minimize cost.^3,7
• Cost-optimized supplies for surgical cases reduce variability and resource waste without impacting surgical outcomes.

Anesthesia Billing and Time Units

• Anesthesia services are billed using an equation that combines anesthesia base units and anesthesia time units, which are then multiplied by a conversion factor specific to each payor.6 Anesthesia base units are assigned using CPT codes that encompass anesthesia care for specific surgical procedures, with each CPT code carrying a set number of anesthesia base units.⁸
• Anesthesia time is calculated in 15-minute blocks, with each 15-minute block corresponding to 1 time unit.⁶ Time units begin to accrue after the anesthesia start time and stop accruing at the anesthesia end time. The total number of anesthesia time units for a given case can be determined by dividing the total anesthesia time in minutes by 15. The specific staffing for each case also impacts anesthesia billing, and common anesthesia staffing modifiers can be found in Table 2.

Resource Access

NORA Limitations

• NORA sites introduce environmental and operational constraints that impact cost and safety.²
  • Environmental limitations include limited space for equipment and variability in room layout and monitoring capabilities.²
  • Operational limitations include longer turnover times, longer transport times, and additional staff requirements due to remote working conditions.²
• Additional safety resources are also needed, including backup airway equipment, extra monitoring supplies, and additional staff for patient safety/logistics.²

Cost and Access Implications

• Systems addressing cost must balance quality, safety, and resource distribution.²
• Cost inefficiency reduces capacity and limits access to care, and value-based initiatives should be used to align resource use with patient-centered outcomes.²
• Value-based pathways and standardized systems can improve efficiency and be adapted for low-resource settings to expand access to essential surgeries despite workforce and equipment limitations.²