Tanglewood Health comprises five hospitals, one home health agency, a surgery center, and affiliated physician practices. Its net revenue is $500 million annually. Its payers are as follows: Medicare (35 percent), Medicaid (30 percent), commercial (25 percent), self-pay (7 percent), and uninsured (3 percent). The system provides all services and is active in all service lines. Its top five services lines are cardiac (20 percent of revenue), orthopedics (20 percent), obstetrics (15 percent), general surgery (15 percent), and internal medicine (15 percent). This year, the system is expected to have a net loss of $20 million. The organization employs 3,000 employees. Salaries are at market value, and benefits account for 25 percent of the salary budget. Some relevant data are provided in the following table:

Revenue	$500 million	Staffing ratios
Costs	$520 million	Med-Surg	4:1
		ICU	2:1
Service-line Revenue		Vendors
Cardiac	$100 million	Ortho 1	$15000/metal hip
Orthopedics	$100 million	Ortho 2	$12500/metal hip
Obstetrics	$75 million	Ortho 3	$10000/metal hip
General Surgery	$75 million	Ortho 4	$9000/metal hip
Internal Medicine	$75 million
General med-surg beds	550	Pacer 1	$5000/unit
ICU beds	100	Pacer 2	$4000/unit
		Pacer 3	$2500/unit
		Pacer 4	$3000/unit
Census		Salary
Med-surg	65%	Nursing	$50/hour
ICU	80%
		FTE	2080 hours/year

As the chief operating officer of Tanglewood Health, you have been assigned the task of guiding the system to a breakeven point over the next 12 months and to profitability in year 2. You have been advised that quality should not be affected by any potential cost-cutting measures.

Answer the following:

The system performs 300 hip replacements per year, and your physicians in the orthopedics department are split in their preferences for the four vendors for hip replacement. Each physician is a powerful voice on the medical staff, and each has threatened to go to another hospital if a preferred vendor is replaced. Identify potential savings opportunities associated with reducing the number of vendors. How will you address the physicians concerns?

The cardiology department uses pacers from four vendors, and the usage is split equally across the four. What information do you need to determine whether the service line is profitable? How can you obtain this information?

Identify how labor expenses might be reduced. Productivity in the nursing units is 94 percent on average. Thus, 6 out of 100 hours are being lost because of staff members remaining in the unit unnecessarily during periods of low census.