Founder of ACLP’s new Quality & Safety SIG, David Kroll, MD, director of quality and safety for the Psychiatry Department at Brigham and Women’s Hospital, leads new thinking on business issues in occasional articles for ACLP News.
A new service line is never free. Even if you know that your project will save money in the end, somebody has to pay up front for some things or else the work will never get done.
Maybe you need to hire new staff, or maybe you don’t. Maybe you can do a lot of the work yourself. Maybe your meeting attendees can bring their own lunches. It’s possible that you can accomplish this task without any real money ever changing hands. Still, it isn’t free.
Everything that transpires in the course of a workday costs something. This may not be obvious. Most of us think about costs in terms of concrete financial transactions: I give $1.50 to the cafeteria and receive a coffee in exchange. But that $1.50 underestimates my coffee’s true cost.
If I spend 10 minutes walking back and forth from my office to the cafeteria, and five minutes waiting in line to pay, and my time goes for $138.64 an hour, the true cost of that coffee is closer to $36.
This assumes, of course, that I have no disposable downtime and wouldn’t benefit from a break now and then. And I might be getting more than just coffee out of the transaction—I could simultaneously be using that time to improve my relationship with a colleague, or I might need time to think about a problem with one of my patients.
I’m not that important, but there is something to be said for the fact that the people who are important usually delegate their coffee runs to people with lower salaries. Doing anything at all with your time requires you not to do something else.
And yet, most of the time you only need to secure funding for projects that actually involve financial transactions.
I have no access to my department’s budget, but I can call 12 psychiatrists and two social workers into an hour-long meeting, and typically about two-thirds will show up. That meeting uses over $1000 worth of department resources, but can I also get $80 for pizza? No way.
Many psychiatry departments guard their sundry funds better than they guard their personnel resources. You can use this fact to your advantage for unfunded projects, especially if they’re small, but it’s important to understand what you’re doing. Here’s the basic formula:
Hourly staff cost = [(Annual salary + fringe)/(number of working weeks per year)]/(number of working hours per week)
Fringe refers to the costs associated with employing you that do not directly become part of your salary, like health insurance. Although overhead costs vary between employees and may not truly be proportional to your salary, the fringe rate is typically set by your institution and must be included in any budget calculation.
So, with a hypothetical salary of $200,000 per year, a fringe rate of 33%, an expectation of 48 working weeks per year, and 40 working hours per week, your hourly rate comes to:
[($200,000 + $66,000)/48]/40 = $138.54
I don’t want you to start fretting over every wasted hour, but if you’re trying to determine the staffing cost of a proposed new service line, this formula is how you do it. Then you simply add up the hours.
Let’s say I am proposing a new interdisciplinary consultation service for highly complex inpatients and expect all the work for each consult on this new service to require two hours of psychiatrist time, 1.5 hours of social worker time, and 15 minutes of administrative assistant time. I expect to deliver this service to three new patients per week. This new service costs:
[2*(138.54 hourly psychiatrist rate) + 1.5*(48.49 hourly social worker rate) + 0.25*(31.88 hourly administrative assistant rate)]*[3 consults per week] = $1073 per week, or $55,815 per year
You might notice that I multiplied the weekly rate by 52 to get the yearly rate, rather than 48. This is because your staff only works for 48 weeks per year, but you need to deliver the service 52 weeks per year. Or maybe you don’t—that’s really up to you.
Because I didn’t hire any new staff or purchase any new equipment for this service, and because I didn’t buy anybody lunch, I may be able to sneak this project into existing workflows without allocating specific funding for it. At least for a few weeks, while I test it out.
But $55,815 turns out to be a lot of money, so if I want this project to really go somewhere I’ll probably have to find a way to prove that investing in my new service line is worthwhile to somebody who can pay for it.
Unfortunately, I’m out of space in this column. Maybe next time.
We’ll keep him to that. Look out for “getting a return on investment” in the next ACLP News business column.