Reduction of Average Length of Stay improves hospital Revenue & profit

Reduction of Average Length of Stay improves hospital Revenue & profit

This is common statement made by most hospital managers. However it is not clear to most , how reduction of ALSO can help in improving hospital top line as well as bottom line. Some of the key points which help us understanding this are:

  • Today revenue per occupied bed per night is key term to calculate revenue. In a good tertiary care unit it is targeted to be over Rs 30000 /- per day and for secondary care unit, it is ideally above Rs 15000/ per day.
  • Mature hospitals (more than five years in operations) strive to achieve average annual occupancy of 80 %. If capacity utilization is low, revenue per occupied bed per day will have limited significance.
  • It is to note that in Medical and / Intensive care patient , revenue is much higher in first 48 hours and reduces subsequently as most of diagnostic is done initially.
  • Patient who occupy beds with limited procedure / diagnostic, add much less to both top line and profits. This is the reason that hospital in west (US / UK) are encouraging patient to go for domiciliary care . Newer technology like minimally access surgeries also help in reduction of stay at hospital thereby improving revenue per occupied bed per day.
  • Today leading tertiary care hospitals are striving to achieve 40 % of its revenue from day care / outpatient and OPD diagnostic services. As technology will improve, requirement for beds will decrease but need for more operating rooms, procedure room and diagnostic like endoscopy etc will increase.
  • To sum up, occupancy is no more a key parameter of performance of hospital. Instead revenue per bed is key performance indicator of health of hospital. If ALSO (Denominator) is small; revenue per occupied bed will be high.

Dr Vikram Singh Raghuvanshi  is  leading authority  on Hospital operations . He has also worked in area of Strategy & hospital operations for over 25 years. He has designed and managed over 50 hospitals in India. He is also visiting faculty @ leading management Institutions.

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