Business session: Profitability in the OR—Benchmark Your OR’s Performance

Editor's Note

“Has your CNO [chief nursing officer] ever said you are the CEO of your department?” Jessica Gruendler, DNP, senior director of nursing, Perioperative Services, at Dignity Health, posed to OR Manager Conference attendees at the start of this session in a packed room with standing room only. A few people in the audience rose their hands. “Well, to be the CEO of your department, you need to understand profitability and have multiple approaches to it.”

In perioperative terms, profitability refers to the financial success and the viability of the surgical department to be able to provide and sustain surgical services that fit a given community’s needs, she said. And that is determined by the balance of the revenue that the department generates and the cost associated with delivering care.

However, a perioperative leader’s relationship with profitability works differently depending on the facility. “If you’re an administrator of an ASC [ambulatory surgery center], it is your full-time job to maintain profitability. If you’re in a hospital’s surgical department, there are many other departments that feed into profitability.” The hospital setting, she explained, is complex because perioperative services do not operate in a vacuum, and reimbursement for surgical services often depends on other people.

“Who has a political governor or a governance committee for their ORs?” Gruendler asked next. “Good,” she said when the majority of people raised their hands. Governance committees are usually to whom perioperative leaders present clinical, operational, and financial metrics, she explained. And having physicians/surgeons participate in those committees is crucial for success. “The best thing you can do to get physicians to improve their first case on-time starts is to present the number of dollars they are costing the hospital,” she said.

Gruendler’s next question truly kicked off the educational portion of her presentation. “Who here has been told or believes that increasing your surgical volume will increase your revenue?” Again, many hands went up. “If the cases you’re adding have a negative contribution margin, you can schedule as many of them as you or your administration wants, but you’re still not going to make a profit.” Contribution margin is reimbursement minus variable costs, she explained. In order to offset that negative contribution margin, the goal should be to have an ancillary department feed into the surgical department’s revenue.

For the rest of the session, Gruendler walked through how leaders can better understand the financial aspects of their operations, how those financial aspects can affect their facilities, and how to build relationships and partner with other departments to drive actionable change that will help them.

“A lot of the time, as OR directors, we don’t understand how reimbursement is generated,” Gruendler stated. “The key to your success is the ability to not only understand this information, but to present it in a way that helps drive your governance committee to make good decisions. We have to do a lot better in understanding the costs related to surgical services.”