How Operational Inefficiencies Can Create Financial Pressure

By Two Pillars & Co Advisory Group · Sources checked October 2026

What is operational inefficiency?

Operational inefficiency is any use of resources that does not contribute to the output the hospital values. In health care it typically takes four forms: waiting (patients waiting for beds, tests or discharge; staff waiting for information), rework (repeating tasks because of errors, such as correcting claims or re-entering orders), idle capacity (rooms, equipment or staff not in use during paid time) and variation (differences in practice that raise cost without improving outcomes). Each has a cost in staff time, capacity or cash.

Because inefficiencies are spread across departments, they rarely appear as a line item. They appear as higher labor cost per case, longer stays, lower throughput and slow cash.

Where do inefficiencies hide?

Several areas deserve attention. Patient flow: delays in admission from the emergency department, in diagnostic tests, in consults and in discharge extend length of stay and block beds. The American Hospital Association reports that among Medicare Advantage patients the average length of stay before discharge to post-acute care doubled relative to Traditional Medicare between 2019 and 2024, and attributes delays to prior authorization requirements and insufficient post-acute networks.^[1] That is the association’s analysis, but it points to a flow issue that costs hospitals money, since each extra day uses a bed.

Capacity utilization: MedPAC reported average inpatient occupancy of about 71 percent in FY 2024, with 5 percent of hospitals under 13 percent and 5 percent over 90 percent.^[2] Under-used capacity raises cost per case; over-used capacity causes delays and lost patients. Administrative processes: rework in the revenue cycle shows up in clean claim rates and denial rates, and the Healthcare Financial Management Association’s cost to collect metric tracks total revenue cycle cost relative to cash collected.^[3] Supply and equipment handling, scheduling and documentation are other areas.

How do you measure it?

Use a few flow and rework measures: emergency department boarding time, time from discharge order to departure, operating room turnover and first-case start, imaging wait times, clean claim rate, rework hours and overtime. Map the process for a few high-volume pathways and time each step. Observe the work. Staff usually know where the waits and workarounds are.

Cost the inefficiency. A day of avoidable delay can be valued at the marginal cost of a bed day if capacity is not constrained, or at the contribution of the patient who could have used the bed if it is. Rework hours can be costed at loaded labor rates. Idle capacity can be costed at the fixed cost per hour. Kaplan and Porter argue that understanding costs requires measuring the actual resources used by each patient’s care, which is how waste becomes visible.^[4]

How do you tell inefficiency from price and volume effects?

Control for price and volume. Compare cost per unit of service over time and across peers, hold wage rates constant and compare hours per unit. If hours per unit are rising or varying widely across similar units, there is likely an inefficiency. If unit cost is rising only because prices rose, the issue is different.

An invented example: average discharge-order-to-departure time is 4.5 hours; the best unit achieves 2.5. With 6,000 discharges a year on the slower units, the two-hour excess equals 12,000 bed-hours, or 500 bed-days. If occupancy is constrained and each freed bed-day lets the hospital admit a patient with $1,500 of contribution, the opportunity could be material. The numbers are illustrative only.

What are good first actions?

Pick one or two high-impact flows, such as discharge timeliness and claim quality. Set a baseline, assign an owner, make one or two changes and re-measure. Share the results. Avoid broad cost-cutting targets that ignore the cause. And keep clinicians involved: they know the clinical constraints and will sustain changes they helped design. The interactive example below uses invented figures to illustrate sizing the cost of delays and rework.

Frequently asked questions

What to do next

1. Map two high-volume patient or billing flows end to end.
2. Time each step and list rework loops.
3. Cost the delay, rework and idle time.
4. Make one change, then re-measure.