The fallacy of ‘revenue-generating’ space
All my recent healthcare clients have declared a desire to focus their capital expenditures on “revenue-generating” space, meaning the portion of their facilities associated with diagnostics, procedures, or inpatient stays. The idea is that in times of increasing economic pressure, they need to maximize their investment in aspects of their organization that can contribute to the generation of additional revenue. The corollary is that to spend money on facility spaces that do not contribute to increased revenue is unwise.
Until recently, I have been in complete agreement with this and encouraged the concept, but I now see that taking it too literally creates problems. Failure to take a broader view can lead to short-sighted decisions.
Revenue in a facility is determined by the number of key drivers and the throughput they achieve. Examples are operating rooms (driver) and the number of cases performed (throughput), or the use of inpatient beds or an imaging machine (drivers) and the number of patients involved (throughput). Revenue can be enhanced by increasing the number of places or devices where revenue can be earned as long as a demand exists for the service, or by increasing the throughput of existing places or devices. So it seems that one important aspect of improving revenue is to increase efficiency.
Additional space for an administrative office may not increase efficiency, but increased space in an operating room might improve performance and throughput by supporting new equipment or technology. A more sophisticated view, then, is to consider allocating capital to the so-called revenue-generating places and devices and to enhance investments that enhance efficiency, or at least to eliminate organizational constraints to throughput.
The concept of “lean design” is to improve performance by eliminating wasteful activity and reducing cycle times; this distinguishes between true value-added activities and those that consume resources without adding value. Reducing waste and adding value seem to me to be more useful than simply avoiding construction of space labeled as “non-revenue generating.”
An alternative point of view is to examine the organization as a whole system, striving for improved operational performance in whatever way possible. This system view holds that the organization is a form of ecosystem or complex adaptive network, in which all parts are necessary, interdependent, and connected. To optimize performance of the surgery suite in terms of the whole system, therefore, the operating rooms need effective and efficient support services, such as a loading dock or instrument reprocessing system, along with all of the administrative functions of reception, registration, and scheduling. Without the right number of elevators or the appropriate fiber-optic information backbone in the system, efficiency can decline. In contrast, the specific number and size of the operating rooms and recovery positions are the only aspects that might have been considered under the revenue-generating model
Some organizations have increased revenue and throughput by extending the hours when surgery is routinely performed or the hours of operation for an imaging department. The Hospital of the University of Pennsylvania in Philadelphia reported that in 2000, standardizing 92 different procedures reduced in-room time for surgical patients, resulting in a 5% increase in cases managed with no space added. This is a great example of avoiding capital expenditure by improving throughput.
At some point, healthcare organizations face the inevitable decision to upgrade an engineering system because its capacity has been exceeded or its energy use is costly and inefficient. They may need to upgrade an information technology system because their existing system restrains efficient performance. Investments in amenities for staff, such as comfortable lounges, secure storage for purses and coats, or electronic education carrels on patient units may be required to reduce burnout and staff turnover. None of these investments would pass the revenue-generating test, but each might be absolutely necessary to sustaining optimum organizational performance.
So, I offer the substitute language of “efficiency-generating” space and capital investment. I have begun to advise my clients to take a wider view of the facility implications of revenue enhancement. Those who focus their capital expenditures on efficiency- generating space will emphasize the facility spaces or technologies that produce revenue and the investments that enhance efficiency or throughput. For those who insist on adhering to the familiar and comfortable language of “revenue-generating” space, at least begin to think of a broader definition of how that revenue can be efficiently optimized. HD
D. Kirk Hamilton, FAIA, FACHA, is the Interim Director and a Fellow of the Center for Health Systems and Design, and an Associate Professor of Architecture at Texas A&M University. He is a founding principal emeritus of WHR Architects in Houston. He is a past-president of the American College of Healthcare Architects and the AIA Academy of Architecture for Health. He serves on the board of directors of The Center for Health Design and the Coalition for Health Environments Research. He has authored and edited three books on health facility design and is currently working on new books about designing with evidence and design for critical care.