OR costs: Labor vs materials
Last updated: 03/05/2015
Anesthesia accounts for 5.6% of perioperative costs. The operating room as a whole accounts for 40% of total hospital expenses, and it generates 70% of the revenue.1 As one might expect, there is considerable interest in reducing these costs in order to maximize profitability. Operating room cost can be described in terms of fixed and variable expenses. Fixed expenses (overhead) include those costs that do not change over a specified period of time and account for 56-84% of operating room costs.2 Examples include mortgage, administration and salaried employee costs. Variable expenses are those that fluctuate based upon caseload, such as part-time employee and disposable supply costs. Long-term operational costs can be reduced by controlling fixed expenses whereas the short-term cost per case can be influenced by controlling the variable costs. The two major variable and fixed costs in the operating room are labor and materials.
Labor makes up the largest portion of variable costs.3 Macario and Dexter describe two major factors that influence OR labor costs: methods of compensation and scheduling. Methods of compensation include part-time hourly, full-time hourly and salaried. When a case requires the use of part-time employees, increases in cost are proportional to the case duration and hourly wage of that staff member. Full-time and salaried employees do not cost anything over the fixed cost unless it occurs outside of usual operational hours. This leads us to consider how methods of scheduling can influence labor costs. Cases performed at undesirable hours increase labor costs directly by increasing the over-time incurred by hourly employees and indirectly by increased retention costs associated with overnight hours worked. In addition, in order to perform cases on short-notice, there must be employees available who were previously unutilized. A higher percentage of these last-minute cases, therefore, rely on a higher percentage of underutilized labor and thus result in greater labor costs.
Efficient utilization of labor is a major goal in minimizing cost and maximizing revenue. It is important to ensure that the number and distribution of staff matches the workload. When scheduling cases in an operating room, one must seek to match the duration of the cases to the number of working hours expected of the staff. For instance, if the cases in an operating room finish before an employee’s work day is over, this results in underutilized time. However, if the cases last longer than the employee was scheduled to work this results in overutilized time. Both underutilized and overutilized time result in lost revenue; however, overutilized time is generally more expensive because of the extra cost associated with paying employees overtime.4
The factors influencing operating room costs for materials are quite different from those affecting labor costs. Materials that are necessary for running an operating room can be divided into capital equipment and operational supplies. Capital equipment is a fixed expense and includes more expensive long-lasting items such as computers, operating room tables and anesthesia machines. Cost for capital equipment depends upon the usual free market considerations for the initial purchase as well as ongoing maintenance costs. The cost for expendable operating room supplies such as sutures, surgical drapes and medications varies based upon caseload. Pharmaceutical costs account for about 6% of hospital expenses, and anesthesia drugs make up 22% of these costs.5-6 High-tech surgical devices are often disposable and contribute heavily to overall variable costs. The benefits of new drugs and devices have to be weighed against the cost. In certain instances, reusable supplies can be substituted for consumable ones. Surgeons, anesthesiologists and nurses all have a responsibility to guard against needless waste.
In summary, labor costs are largely affected by time-related concerns such as efficient utilization and strategic scheduling of cases and staff. Variable costs can be controlled best by effectively managing labor costs. On the other hand, material-related costs are more dependent upon free market issues and stewardship. Initial purchases of capital equipment must be made with careful consideration and the items must be maintained. Costs for disposable items will inevitably vary with case load and can be reduced by avoiding waste and substituting reusable or generic items when feasible.
- A Macario, T S Vitez, B Dunn, T McDonald Where are the costs in perioperative care? Analysis of hospital costs and charges for inpatient surgical care. Anesthesiology: 1995, 83(6);1138-44 Link
- R R Roberts, P W Frutos, G G Ciavarella, L M Gussow, E K Mensah, L M Kampe, H E Straus, G Joseph, R J Rydman Distribution of variable vs fixed costs of hospital care. JAMA: 1999, 281(7);644-9 Link
- A Macario, F Dexter Effect of compensation and patient scheduling on OR labor costs. AORN J: 2000, 71(4);860, 863-9 Link
- R E Johnstone, K G Jozefczyk Costs of anesthetic drugs: experiences with a cost education trial. Anesth. Analg.: 1994, 78(4);766-71 Link
- R E Johnstone Strategies to control anesthetic practice costs. Int Anesthesiol Clin: 1998, 36(1);59-63 Link
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