by Tom Robertson
Executive Director, Vizient Research Institute

Ambulatory health care operations and the airlines have one important feature in common: high fixed costs.

In the case of clinics, fixed costs include buildings, equipment, and the basic staffing levels required to be open and available to patients. For the airlines, it’s airplanes. Both businesses are faced with a similar challenge – to serve enough passengers or patients to cover the extraordinarily high fixed costs associated with each airplane seat or exam table. The more passengers an airline serves with a given airplane, the lower the fixed costs per passenger. If a health care provider sees fewer patients in a given suite of exam rooms, fixed costs per patient increase.

The airlines know that an airplane makes money when it is in the air and it loses money every minute that it sits on the ground. Southwest Airlines abandoned assigned seating in favor of a system that has passengers line up prior to boarding and then select any seat once they are on the plane. Their rationale for what they call open seating was not to make passengers anxious or uncomfortable just prior to boarding.

Rather, Southwest discovered that they can turn a plane faster at the gate if passengers simply sit down rather than searching for a pre-determined seat.

If an airplane spends less idle time on the ground at each of several stops throughout the day, Southwest can squeeze an extra flight out of its fixed cost asset. Higher passenger volume to an airline translates into lower average costs, which in turn enable lower prices, higher margins, or both.

A review of ambulatory clinic volume at a typical academic medical center (AMC) shows an interesting and repetitive pattern. The number of patients seen in any given suite of exam rooms is roughly two times higher on Monday and Tuesday than it is on Thursday or Friday. An ambulatory clinic that sees 80 patients per day early in the week drops off to less than 40 patients per day later in the week.

Using the airlines metaphor, this is the equivalent of flying eight flights with an airplane on Tuesday, only four flights on Thursday, and parking the plane over the weekend. No airline could stay in business if it used its airplanes the way many AMCs use ambulatory facilities. Fixed costs are prohibitively high for such suboptimal utilization of capacity.

A common refrain in ambulatory health care circles is “we need more space”. What we really mean is that we need more space on Tuesday morning at 10 o’clock. On Thursday afternoon at three, we have an alarming amount of available space. Adding incremental space to increase capacity on Tuesday morning would simply exacerbate the problem of unused capacity on Thursday afternoon. The trick to making the economic math work is to make Thursdays look like Tuesdays – by utilizing costly capacity more evenly throughout the week.

If we set out to make Thursdays look like Tuesdays, it’s reasonable to ask if there is sufficient demand to fill the unused capacity.

One look at commonly observed wait times for patient appointments – waits of weeks or even several months are not unusual – suggests that there is pent-up demand. Patients who now wait weeks for a Tuesday appointment would gladly come in next Thursday. Before contemplating additional clinic space, it would be wise to consider how many patients would welcome appointments during evening hours or on weekends. Uneven use of clinic space over the course of a week is extremely expensive.

At AMCs, research and education complicate the task of optimally utilizing expensive clinic space. Faculty physicians have multiple responsibilities which, unless carefully managed, can lead to blocks of vacant time in the clinics. A common practice, the permanent allocation of specific clinic space to individual specialties, makes it virtually impossible to efficiently utilize the fixed cost assets.

When I visit ambulatory clinics it is quite common to see signage permanently affixed to a wall, designating that space for a particular specialty. When that complement of faculty physicians is engaged in research or teaching, or when they are all in surgery, that space goes unused. An alternative worth considering is “fungible capacity” – space that can be used by various specialties at different times during the course of a week. While some specialties (e.g., ophthalmology) need unique configurations, most physician consultation space can be interchangeable.

The next time you fly Southwest Airlines, look at the airplane. It will be a Boeing 737. Southwest only flies 737 aircraft. When they bought another airline, they sold the acquired fleet of airplanes because they were not 737s. The reason for standardizing their airplanes centers on fungible capacity. All of their pilots are certified to fly all of their planes. Their mechanics become proficient at servicing the same planes. And when they have to pull a plane out of service, the one that replaces it has an identical seating configuration. No scrambling at the gate to reassign passengers. No capacity shortfalls or surplus. To Southwest, their most expensive assets – the airplanes – are interchangeable. Fungible capacity.

As higher insurance deductibles and greater transparency compress prices for low acuity ambulatory care, it will become increasingly important for AMCs to more efficiently utilize their clinic space, which comes with enormous fixed costs. Traditional practices, like permanently assigned exam room space, peak and valley scheduling, unused capacity and lengthy waits for next available appointments, will no longer be sustainable.

When patients are asked to pay a larger portion of the bill out-of-pocket, those with financial means will look elsewhere rather than waiting weeks for an appointment. As reimbursement rates are squeezed, operating margins will depend upon optimal utilization of expensive ambulatory capacity. We have been flying our airplanes half empty. That business model is ill-suited for a less forgiving market. Very soon we have to make Thursdays look like Tuesdays in our clinics. Before long, we’ll be forced to make Wednesday evenings and Saturdays look the same.

About the author and the Vizient Research Institute. As executive director of the Vizient Research Institute, Tom Robertson and his team have conducted strategic research on clinical enterprise challenges for 20 years. The groundbreaking work at the Vizient Research Institute drives exceptional member value using a systematic, integrated approach. The investigations quickly uncover practical, tested results that lead to measurable improvement in clinical and economic performance.

Published: May 25, 2016