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Date: April 30, 1992

To: John Gialanella, DirectorMateriel Services DepartmentUniversity of Michigan Medical Center

Dr. Richard Coffey, DirectorManagement SystemsUniversity of Michigan Medical Center

Frank Krupansky, Assistant DirectorMateriel Services Department

Jacqueline Grudziecki, Financial DirectorMateriel Services Department

Sarah Armstead, Materiel Services Supervisor IMateriel Services Department

From: Sanjeev Acharya, ConsultantAdam Chaskin, Consultant

Subject: Recommendations and findings for improving theefficiency of the Materiel Services Department

Attachments: Staffing charts and dataEquipment charging flow chart

Executive Summary

The project that was assigned to us by the Materiel ServicesDepartment is a three part project. The first part of the project was todetermine an optimal schedule for the Patient Equipment Room. The secondwas to develop a way to determine the components that are really involvedin the cost of a piece of equipment. And the third part was to determine if anautomated tracking system is needed to track equipment utilization, establishmaintenance schedules, and automate patient charges and download them tobilling.

The staffing levels were determined by using a spreadsheet program.The data was sorted by item type requested, units requesting, and equipmentrequests by day per half hour. In addition a standard time was determined forworkers to deliver a piece of equipment

New equipment charges were determined by examining the new costanalysis worksheets currently used by the University of Michigan Hospitals.From this, a step by step flowchart was developed that can be used todetermine the charge of each piece of equipment. One problem encountered

with this part of the project was the lack of information on how the originalcharges were determined.

The methodology used for determining if an automated trackingsystem was needed was to first determine what the Materiel ServicesDepartment wanted the tracking system to do. Then we talked with anoutside consulting company to see if such a system was possible and feasible.

The new staffing schedule, involving ten hour shifts, should beimplemented gradually. If the new staffing schedule is not graduallyimplemented, workers will complain about increased workloads and longerworking hours. The idea is to slowly accustom the workers to the changesthat are taking place. This will reduce worker resistance to change. Secondly,the tracking system should be bought and set up immediately. It is alsoimportant to make sure that all employees who are to be in contact with thetracking system are trained properly in all aspects of the tracking system.Finally, the flowchart should be used to determine new charges for all of theequipment which the Patient Equipment Room currently delivers. Thesooner this is done the sooner the Materiel Services Department can get anidea of what it should charge for equipment usage. With a more efficientlyrun department they will be able to operate more smoothly while alsoturning a profit and preparing for a successful future.

The tracking system should be bought and implemented as soon aspossible. Optimally the tracking system should be up and running withinfour to six weeks. Equipment cost calculations should also beginimmediately. Some of the commodity categories, especially maintenance,may be initially difficult to determine. Initially estimates should be used,until these values are established; possibly with the help of the new trackingsystem. As soon as the new charge calculations are done for a particular pieceof equipment, this new charge should be incorporated into the MaterielServices Department’s financial statements.

The staffing schedule should take approximately one month to fullyimplement. The first week to week and a half the employees should becomeaccustomed to the new ten hour shifts. After that, for the next two and a halfto three weeks should be used to slowly reduce the staffing levels to theoptimal levels.

Introduction

Due to cutbacks in the field of health care, hospitals with large amountsof waste and inefficiency in their operating budgets are having to makechanges. A problem exists, however, in the areas that cutbacks will be made.It important to try and make cutbacks in ways that will not decrease services.

The Materiel Services Department of the University of MichiganMedical Center has been one of many departments targeted for cutbacks. Asolution to the overstaffing problems in the Patient Equipment Room,inaccurate charging rates for equipment, and the lack of an equipment

tracking system would offer a great way to make financial cutbacks withoutsacrificing service.

This report describes the proposed solutions to these problems that wehave been able derive based on the information we have obtained. Theinformation has been provided at the request of John Gialanella, the Directorof the Materiel Services Department.

Background

The emphasis on quality control in American business today hasspread to all aspects of business including health care. With the recentchanges in Governmental policies, the changing policies of private insurancecompanies; cost cutting and trimming extra fat or waste has become vital inorder to survive. These changes have forced the Materiel ServicesDepartment to make changes in an effort to become more efficient. TheMateriel Services Department of the University of Michigan Medical Centerhas been making a concentrated effort to improve efficiency and qualitywithin the department over the past two years. In order to achieve this, threemain things were pinpointed by the Director of the department, JohnGialanella:

1. Achieving an optimal staffing situation for the PatientEquipment Room

2. Developing a new equipment reimbursement scale toreplace the outdated one, and

3. Determining an automated tracking system that would bebeneficial to the department and the hospital system asa whole.

Sarah Armstead, who is the supervisor of the Patient Equipment Room, hasbeen put in charge of analyzing the staffing and tracking problems andmaking recommendations for their improvement. Jackie Grudziecki, thefinance supervisor of the department, is responsible for analyzing thefinancial end of the department.

Approach and Methodology

The approach and methodology that we followed was different for eachpart of the project.

For the staffing level part of the project, EXCEL was used extensively.Two months of handwritten data logs were given to us by Sarah Armstead.These records gave us the amount of people that had been working for thepast year and also the amount of requests for work that came down to thePatient Equipment Room during the past two months. The work requests,which were the handwritten logs, were entered into a computer database sothat they could be organized and sorted on varying factors. We were thenable to work with Sarah on developing an optimal staffing schedule. Wesorted the data based on the following characteristics: item requested, time

and day request made, where item was to be delivered, and how long an itemtook to be delivered. Based on the analyses of the data we decided that therewere a couple of problems that could now be solved: runners were taking tolong to make their deliveries and a new staffing situation could be created.

The methodology used to determine new components for equipmentcharges was a form of cost analysis. First of all, it must be stated that the oldinformation on how the equipment charges were originally determined wasunable to be located by the Finance Department. We looked at the currentcost analysis worksheets that the hospital uses, determined what costs go intousing a piece of equipment per day. Then we came up with a flow chart thatcan be followed to determine the costs associated with each piece ofequipment.

The approach used in regards to the tracking system is best described asbrainstorming. First we determined the requirements that the trackingsystem should have. Some of these requirements are:

1) Download patient charges of equipment to billing.2) Track inventory and utilization of equipment.3) Sort on different parameters such as patient, type of

equipment.4) Print out delivery tickets.5) Track rental equipment.6) System easy to use.

We then talked to an outside consulting company to determine if atracking system that matched the Materiel Services Department requirementsis available and not overly expensive.

Current Situation

The Patient Equipment Room currently seems overstaffed. During ourobservations we frequently noticed workers sitting around. It is apparent thatthere is not enough work for them to do. Currently there are three shifts.First shift is from 7:30-4:00. Second shift is from 3:30-12:00 and third shift isfrom 11:30-8:00. In addition three controllers come in at 5:00 a.m. to checkeach room in the hospital for equipment that the patient might have. Fiverunners work during the morning and afternoon shifts while there is oneperson on duty during third shift. Also one person not included in thoseprevious numbers is a dedicated dispatcher.

Currently, no tracking system of any kind is in use. Patient EquipmentStaff frequently spend time looking for equipment. Charges are manuallydone after the equipment is delivered. Also old equipment charges are stillused in charging patients.

Findings and Conclusions4

StaffingThe main purpose of investigating the staffing situation in the Patient

Equipment Room was to devise a schedule for the workers that wouldbetter utilize their time. The department has long experienced theproblems of having too many workers just sitting around at times and notenough to cover the work load at others. After breaking the requests forequipment down into half hour blocks we were able to determine howmany employees were needed for any given half hour block during theday. We then took these numbers to formulate an optimal shift scheduleso that there would always be the correct number of employees on duty.The results were as follows: the controllers come in at 5:00 a.m. and begintheir duties, when they finish (approximately 9:15 a.m. or earlier when theautomated tracking system is installed) they will continue their shift till1:30 p.m. as runners; there will then be two ten hour shifts of runnersstarting at 1:30 p.m. and 11:30 p.m.. (See Figure 1) The use of two ten hourshifts and a four hour shift is better able to meet the varying demandthroughout the day, while at the same time avoiding the problem of toomany people on staff at any given time. This rescheduling has freed upthe resources of at least two full-time employees, saving the departmentsignificant resources that it can now reallocate or leave as savings.

Reimbursement ScaleThe insurance industry has been a fast and radically changing industry

the past few years. Changing regulations in government agencies alongwith changes the government has permitted in private industry has leftmost of the health care industry lost and confused. In order to still profitwith all the new regulations, a reevaluation of what and how much ischarged for was crucial. Most of the new regulations no longer pay whatever the bill says; therefore, allowing the health care industry to hide itsinefficiency in higher charges. Most companies use to pay a fixedpercentage of the bill: no matter what it was they paid x percent, which thehospitals knew and factored into the billing. As a result, bills just gothigher and higher. Now what many companies have done is changed to asystem where you are paid a fixed amount for a certain piece ofequipment; no matter what the bill is for, you only receive a certainamount of money. This has caused the hospital to reevaluate what isincluded in the old charges. This is necessary in order to determine whatan item really costs, not what has been charged for it in the past, andwhether the hospital is making or losing money on that item.

With the aid of the Finance Department of The University of MichiganHospital Center and Jackie Grudziecki of the Materiel ServicesDepartment, we have been able to compile most of the required data. Itwas found that in the past many items that were not involved in theusage of an item were included in its charge since the insurance

companies would pay it anyway. With the new regulations but oldcharges, a large difference in the monies received by the hospital andmonies charged has developed. This creates what appears to be a largeloss. As a result, the unnecessary charges are being eliminated from thecharges for equipment. In order to do this we developed a flow chart (seeFigure 2) that can be used to determine the proper charging rate for anypiece of equipment. When this process is complete, records will be kept asto the difference between amounts billed and amounts received in orderto determine which items are generating losses. However, it is thedepartment’s hope to be able to reduce the cost of the componentsinvolved in all pieces of equipment and increase the utilization of theequipment with the new automated tracking system, even if losses do notshow up on the payment sheets, in order to create the highest possibleprofit margin.

Automated Tracking SystemThe problem that has plagued the Patient Equipment Room of the

Materiel Services Department the most over the years is not knowingwhere some of the equipment was and whether or not they could get acertain type of equipment to a patient. Solving this problem could, by itself, bring the department to the forefront in eost cutting and efficiency. Inthe past the department has been forced to keep on call a rental companythat provided equipment on a day by day basis when the employees of thePatient Equipment Room could not find any of the hospital supply ofequipment. Because there is no tracking system to keep track of theequipment. This obviously creates much wasted resources as money ispoured into a rental company when there very well could be an availablepiece of equipment somewhere else in the hospital that no one is aware of.As a result, an automated tracking system has become crucial if thedepartment is to cut costs and become more efficient. With the addition ofthe tracking system, staffing levels could be reduced even further.

Currently, when a piece of equipment is delivered to a room it isrecorded, but that is the end of the trail. If the equipment is transfered toanother room, sent to a cleaning room, or just left to sit unused, thePatient Equipment Room is unaware of any of these actions and thereforecannot find the equipment to get a good turn around time to use it again.With the automated tracking system, all equipment will be checked out bya computer reading a bar code on the equipment. When equipment istransfered to another room or cleaning area, this will be recorded withportable scanners, used by the controllers that circulate through thehospital, which will record the bar code and update the computer as to thewhereabouts of a piece of equipment. As a result, a person will be able tosit down in the Patient Equipment Room and find out where all theequipment is and if any of it is not being used.

This will reduce the number of rental items the hospital will have touse since the utilization of the equipment owned by the hospital will

increase. In addition, costs will be cut because the controllers who roamthe hospital looking for the equipment will now have a computerprintout of where to look for the equipment, therefore allowing them tospend more of their time as runners delivering equipment to roomsinstead of looking for it. Also, the hospital will be able to reduce thedifference between the number of days an item is billed for and thenumber of days it is actual out of the equipment room. By knowing whereeverything is, the hospital will be able to more accurately bill patients foruse of the equipment. We feel the automated tracking system,independent of the other changes being made, will pull the departmentway ahead in the race to cut costs and become more efficient.

Recommendations

First of all the new staffing schedule should be implemented gradually.If the new staffing schedule is not gradually implemented workers willcomplain about increased workloads and longer working hours. The idea isto slowly accustom the workers to the changes that are taking place. This willreduce worker resistance to change. Secondly, the tracking system should bebought and set up immediately. It is also important to make sure that allemployees who are to be in contact with the tracking system are trainedproperly in all aspects of the tracking system. Finally, the flowchart should beused to determine new costs for all of the equipment which the PatientEquipment Room currently delivers. The sooner this is done the sooner theMateriel Services Department can get an idea of what its costs for equipmentusage is. With a more efficiently run department we will be able to operatemore smoothly while also turning a profit and preparing for a successfulfuture.

Action Plan

The tracking system should be bought and implemented as soon aspossible. Optimally the tracking system should be up and running withinfour to six weeks. Equipment cost calculations should also beginimmediately. Some of the commodity categories, especially maintenancemay be initially difficult to determine. Initially estimates should be used,until these values are established; possibly with the help of the new trackingsystem. As soon as the new cost calculations are done for a particular piece ofequipment, this new cost should be incorporated into the Materiel ServicesDepartment’s financial statements.

The staffing schedule should take approximately one month to fullyimplement. The first week to week and a half the employees should becomeaccustomed to the new ten hour shifts. After that, for the next two and a halfto three weeks should be used to slowly reduce the staffing levels to theoptimal levels.

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Staffing Schedule

C0NTR0LLERS

SUN MON TUE WED THU FRI SAT

5:00AM-1:30PM9:30AM- 2 3 3 3 3 3 3

1:30PMAS RUNNER

1 :3OPM-12:0OAM 2 3 3 3 3 4 3R511:3OPM- 2 2 2 2 2 2 2

10:00AMD

p

R

7:30AM-4:00PM 1 1 1 1 1 1 1

3:30PM-_12:00AM 1 1 1 1 1 1 1

TOTALWORKERS

8 10 10 10 10 11 10

Flow Chart for Determing EquipmentCharges

Step I

A B CDstermme time inhoursinvolvedin Multplytimeby Multtlythsssubtotai AddBandCt000tainl Go to Step 2setting up equ hourly rate of worker by Ireige beneR % a total payrof I cost

Determine technicianneeded to set up soup

Determine Comrrmdity Add up cows of each Add up amounts from Multiply this by Add up amounts fromNO Categories- of these COmmOdIty Steps 1 and 2. Thi Indirect co % A and B. Th Is total

depreciation. Catecortes is direct cost cost of proceduremedicailsurglcat.maintenance, other A B

Step2 Step 3- DeterminIngFinal Cost

If subsequent days of equipment use do not requireuse of technician, then this amount should not beIncluded In equipment charge after the first day.

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