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Journal of the Academy of Hospital Administration

Application of "Value Engineering" to Rationalize the Cost of Cataract Surgery in Eye Clinic at Tata Main Hospital

Author(s): S.P. Jakhanwal*, G.B. Singh*

Vol. 13, No. 2 (2001-07 - 2001-12)

Key Words: Value Engineering, Cost of Cataract Surgery.

Key Messages:

  • The concept of Value Engineering (VE) can be successfully utilized to rationalize the cost of cataract surgery.
  • Functional Analysis System Technique (Fast) is very useful in assessing functional relationships.
  • Concept of Value Engineering should be tried in other areas of Hospital Management to cut unnecessary cost and run the service most cost effectively without sacrificing quality of service.


Increasing awareness, advancing technology, involvement of private and corporate sectors as Health providers have increased cost of health care tremendously in last few decades. Hospitals have virtually taken the shape of industry and cost effectiveness is essential to compete as an industry. "Value Engineering" (VE) is an industrial tool (developed by D. Miles of GEC in the Fifties) for cost reduction and improvement of product performance by system approach, and is widely used presently both in industry and government the world over.

The present project utilized this industrial tool (VE) successfully to rationalize the cost of cataract surgery at Tata Main Hospital, Jamshedpur leading to an estimated saving of Rs. 2.5 lakh annually. Hence it is proposed that as in other industries, this useful "VE" technique can be profitably applied in Hospital management also to reduce redundant cost and run the service more cost-effectively without sacrificing quality.


Cost of health care has increased tremendously in last few decades. Advanced technology, increasing knowledge and awareness among people about health are main factors for this change. Involvement of corporate and private hospitals as Health Providers have completely changed concept of a modern hospital. Hospitals have come up as profit making centers and are virtually being recognized as an industry. In this era of competition, each health provider will have to be cost-effective like other industries, so that they are able to provide the best service at least cost-attracting more customers.

"Value Engineering" (VE)-(developed by Lawrence D. Miles of GEC in Fifties) - is one of the most widely used tool for cost reduction in industries the world over. It is the systematic application of recognized techniques by multi-discipline team, which identifies the function of a product or service, establishes a worth for the function, generates alternatives through the use of creative thinking, and provides the needed function reliably at the lowest cost.

Tata Main Hospital is one of the biggest industrial hospitasl in our county, which provides free medical treatment to its 60,000 employees and their families. In the present study, we have taken help of the same industrial tool, i.e. "VE", to rationalize the cost of cataract surgery in our eye clinic.

Principles of "VE" have been alluded to in brief at relevant places to make its application more easily understandable for medical personnel. Its theory, principles and steps for analysis have already appeared as books and monographs, e.g., Parker (1988), Iyer (1996) and Lomash (1997).

Material and Methods

Eye Clinic of Tata Main Hospital, Jamshedpur (TMH) with large turn-over of eye cases including 1100 Cataract operations, in the period Apr. 2000 - March 2001 provided the needed material and background for the project.

Principle of "VE" explained by authors referred to above, was applied following protocols set in "Value Engineering Guide" published by INVEST, East Zonal Council, Jamshedpur, with minor modifications at places to suit the situation.

Application of "value engineering"

Steps of "VE" Study as applied to our project are explained hereunder:

Orientation Phase:

Objective: To select a Specific Project and a Team:

This requires Identification of "high cost/low value" area; Analyze and evaluate projects for potential; and then finally, select the project for "VE" study.

1. Cataract is the most important cause of curable blindness in our country, the treatment of which is Cataract Extraction.

2. In TMH Eye Clinic, 98.5% of surgical cases admitted in Jamshedpur Eye Hospital (JEH) were for cataract extraction.

3. Most part of the budget expenses (98%) was incurred and utilized for cataract extraction only.

Cataract Extraction Surgery was thus, identified as a most suitable "high cost" area for the study.

Hence, with an objective of reducing the cost of this "high cost area" we undertook the Project. A team consisting of doctors of eye clinic was formed and authorized to carry on the Project.

Information Phase

Objective: To provide a thorough understanding of the system, operation protocol or item under study by in-depth review of all the pertinent factual data.

Collection of complete information is essential to provide foundation upon which the entire "Value Engineering" Study is based.

Detailed pertinent information and data collected by the team are as follows:

1. In the last six years number of admission in eye clinic has almost doubled, i.e., from 597 in 1995-96 to 1163 in 1999-2000.

2. Operation for Cataract extraction amounts to 98.5% of total admission.

3. The Team studied the present protocol followed for cataract surgery at JEH.

4. Patients are operated both in the morning as well as in the evening half of the day as per schedule of OT allotment to respective surgeon.

5. Admission Time:

  • Morning cases are admitted on previous day 2nd half.
  • Evening cases are admitted on the same day 1st half.

6. Discharge Time:

  1. Patients are discharged after dressing next day
  2. Cases operated on Saturdays are to overstay till Monday next as no discharge is made on Sundays at JEH.
  3. Even after morning discharge some patients overstay and leave hospital in the evening.

7. Data showed as follows:

(a) Average Hospital stay:

Year 97-98 98-99 99-00
Hosp. stay:days 3.08 2.75 2.33

(b) Bed Charges at JEH: Rs. 200/- per day; Rs. 100/- for half day.

(c) Number of operation on Saturdays : 150 per year approx.

Function Phase

Objective: To assess its major function, cost and "relative worth"; and to determine functions which are being performed and those which must be performed by the item or system under study.

In "VE", function is best expressed using two words; a "verb" and its "noun" object. Functions of items or systems may be divided into two types : Basic, and Secondary. While a Primary function answers the question "What does it do?", a Secondary function answers the question, "What else does it do?". For example, whereas the Basic function of exterior paint is "protect surface", then a Secondary function is "improve appearance".

A) Determining Functions:

Function of Hospital stay:

Component Verb Noun
i) Pre-operative Stay Prepare Patient
ii) Stay on operation day Operate Patient
iii) Post operative stay Examine Patient
Dressing Patient

Functions were further analysed at different stages:

Pre-operative Preparation of patient:

  • Eye lashes are trimmed
  • Face wash with soap
  • Hair is tied and secured
  • Antibiotic drops started
  • Two tablets of Diamox is given 1 hour before operation
  • Dilating drops started 1 hr before operation and instilled twice at 15 min interval
  • Patient is sent to O.T.

Operation of Patient:

  • Retrobulbar/Peribulbar block is given 10-15 min before operation.
  • Operation is performed
  • Patient is sent to ward ambulatory with pad and bandage
  • Patient is given normal diet

Post operative Stay:

1st Postoperative day: Pad and Bandage is opened

  • Wound inspected
  • Local Eye drops (Steroid + Antibiotic + Mydriatic) are applied as per requirement and rebandaged
  • Patient is discharged and asked to remove bandage and wear dark glasses at home
  • Advised to continue drops and ointments prescribed and to report at OPD for follow-up.

B) Determining Functional Relationship:

In "VE" the designation of function as basic or secondary depends upon the indenture level. A function which exists to support the method of performing the Basic function is a Secondary function. This is best assessed with application of Function Analysis System Technique (FAST). It is a diagramming technique which reveals the relationship, and interrelationship of all known functions.

Steps of developing "FAST" Diagram:

  • Diagram to have a critical Path of Function from left to right between two Scopelines
  • On the Critical Path, Higher Order Function (HOF), Basic and Secondary functions are listed from left to right in that order.
  • HOF is placed outside the left Scopeline
  • Basic function is placed immediate right to the left Scopeline
  • All other functions (Secondary, and others) lie to the right of Basic function
  • To determine whether the functions are arranged properly, two basic logic test questions must be met : "How?" and "Why?". The functional answer of "How?" should lie immediate Left, and answer of "Why?" on Right of the function.

Fast 1

The "FAST" Diagram helped the team to identify the "HOF", Basic and Secondary functions and their inter-relationship; and to establish scope of this "VE" study.

C). Determining Functional Worth:

"Worth" is the least expensive way to barely perform a function without considering where or how the function is used.

"Cost-Worth" Analysis of Functions:

Table 1 Showing Hospital Stay has high "worth" for Operation Function,

While Hospital Stay Is "worth" less for Pre and Post Op Functions

Component Function Cost "C" in Rs. Worth "W" In Rs. Basic of worth Value (C-W)
a. Pre-op Stay Prepare 100 Hospital Stay 100  
b. Oper. Day Stay Operate Patient 200 200 Hospital Stay 0
c. Post-op Stay Examination and Dressing of Patients 100 0 Hospital Stay 100
d. Post-op Stay on Sunday (Operated on Saturday) -Do- 300 0 Hospital Stay 300

Functional Cost is the cost of the method chosen to perform the function. "Cost-Worth" analysis helps to find out the true value of the function and suggests those items or functions susceptible to value studies (Table:1).

In other words, it is very much "worth" staying in hospital on operation day for surgery but it is not "worth" staying in the hospital for Pre and Post Operative functions

Creative Phase

Objective: To speculate alternatives through brain storming.

After number of brain storming sessions of the team members involving careful analysis of emerging data and speculation of alternatives, the following three most relevant and practical ideas were selected for further evaluation, out of other enlisted alternatives:

  1. Reduce Pre- and Post- operation stay in hospital
  2. Discharge should be made on Sundays
  3. Change the Saturday O.T. to some other week day.

Evaluation Phase

Objective: To analyse the result of Creative Phase, and through an in-depth review of various alternatives (emerging from Creative Phase) short-list the best ideas for further expansion.

Though several techniques are available, "Weighing Criteria" technique was preferred because of its practicality and appropriateness to the situation under study.

Weighing Criteria: To weigh the ideas, a set of standards or criteria are needed. To arrive at a suitable set of criteria, question asked is, "What will be affected by this idea, if implemented?" Deliberating on above lines the following criteria were selected for idea evaluation:

  1. Quality of operation
  2. Cost effectiveness
  3. Ease of implementation

Fast 2

Numerical Rating of Selected Criteria: To arrive at numerical rating of the above selected set of criteria each criterion was rated by the Team members as per usual protocol and compared against "1-10" point scale by Paired Comparison Method (Table:2).

Quality must not be sacrificed for the sake of cost reduction and least so for the sake of ease.

"Weighing" Idea against Criteria: Each alternative idea is weighed against set of chosen Criteria for final selection. Alternatives or ideas are ranked as 4 for "Excellent"; 3 for "Very Good"; 2 for "Satisfactory" and 1 for "Poor".

A numerical score was computed by multiplying the "weight" factor (A=16; B=9; C=5) times the rank rating assigned to different alternatives as shown in Decision Matrix below: (Table:3).

Decision Matrix

Table 3

Each Idea "weighed" against each Criteria to arrive at Total Score for Each Idea

Rank Rating Criteria Weight
Excellent 4 Quality of Operation... A=16
Very Good 3 Cost effectiveness.... B = 9
Satisfactory 2 Ease of implementation... C = 5
Poor 1    

Fast 3

The team discussed each idea and valued each of them against selected criteria.

Idea No 1: Work done on Pre and Post Op days can easily be performed at OPD and do not necessarily require hospitalization. At the same time hospitalization on Operation day would continue thus no abandonment of Pre and Post Op procedures and no compromise with Basic Function. This was most Cost-effective also (saving of approx Rs. 200/- per patient) and was easy to implement. Thus Idea No 1 scored highest = 106.

Idea No's 2 and 3: Comparing these two ideas it is to be noted that both rated same for (against) Criteria A; while for (against) Criteria B and C the Idea No 2 was rated lower than C. It was also noted that for discharge making on a Sunday (Idea2), the hospital Office had to be opened which required management permission, while change of O.T. date (Idea 3) can be decided by the Hospital Superintendent, which was easier. (Score: Idea 2=78; and Idea 3 = 92).

Recommendation Phase:

Objective: To collect additional pertinent data and to thoroughly analyse the best alternative emerging from Evaluation Phase; and prepare Cost Estimates and modify proposals to ensure flexibility if implemented.

For Idea No 1: All members of team were unanimous and recommended for implementation. (Score: 106)

For Ideas No 2: The management was unwilling as it required opening the Hospital Office on a Sunday for which "overtime" had to be paid, making the idea "costly"; moreover, it was against current policy. The idea was therefore finally not included for recommendation (Idea scored lowest: Score 78) For Idea No. 3: Required only slight change in routine without involving any extra expenditure and was recommended for implementation. (Idea scored:92)

The Team finally recommended for following changes:

  1. To reduce Pre and Post Op Stay (Idea No.1)
  2. Saturday O.T. to be changed to some other working day. (Idea No.3)

Presentation phase:

Objective: To put the Recommendation Alternatives in such convincing terms that the Decision makers willingly accept them.

Along with a written report, oral presentation was also made to convince the management.

The report was accepted by management and implementation followed.

Implementation phase:

Objective: To ensure that the approved proposal is rapidly and properly translated into action.

Post Implementation Schedule

  1. Cases for Operation in the morning half:
    • Admission: same day in the morning
    • Discharge: same day in the evening
    • Post Op: Advised to visit TMH Eye OPD next morning for exam and dressing
  2. Cases for Operation in the evening half:
    • Admission: after 12 noon on the day of operation
    • Discharge: next day morning after Post Op exam and dressing
  3. Saturday evening O.T. was changed to Wednesday evening

N.B. : No Pre or Post Op essential medical procedures were omitted/abandoned in the newly recommended schedule. They were done at OPD.

Audit Phase Objective: To validate whether desired results have been attained, properly documented and reported.


1. Effects of Implementation of Recommendation No. 1 and 2 are summarized (in Table 4)

Table 4: Effects of Implementation of Recommendation No. 1 and 2:

Item Pre-implementation Per patient (Rs.) Post implementation per patient (Rs.) Saving per patient(Rs.) Total Cataract Op in Year (No.) Total Saving in year (Rs.)
Bed days 2.33 1.11 1.22 1100 1342
Bed Cost (Rs.) 400 200 200 1100 220000

2. Effect of Implementation of Recommendation. No. 3:

Savings per Patient operated on 1st day = Rs. 200.00

Saturdays: Total number of operations on Saturdays 150 in the Year

Total Saving due to 200 x 150 = Rs. 30,000.00

Recommendation No. 3

Total Saving by implementing Recommendations: 2,20,000 + 30,000 = Rs. 2,50,000 in one year.

3. Feed-back from patient/Customer (Beneficiary of Cataract Surgery):

Total No. of Responses Noted : 462; PC expressed in nearest integer.

  Happy Unhappy Indifferent
On stopping of admission one day prior to operation: 370 - (80%) 78 - (17%) 14 - (3%)
On stopping Post operative day stay: 277 - (60%) 153 - (33%) 32  - (7%)

Thus, patients in general appeared satisfied with the changed system.


"Value Engineering" has been considered essentially an Industrial tool for several decades, but of late it has been utilized by Industry and Government agencies for diverse applications.

World War II was an acute survival stress period when innovation was required because of shortage of materials. Some critical materials were difficult to obtain and a great many substitution had to be made. These changes often resulted in lower cost and improved product. Harry Erlicker, Vice President of Purchasing at General Electric Co. (GEC) keenly observed this. Encouraged by this observation, in 1947 Lawrence D.Miles of GEC was assigned to Purchasing Division to study a new design concept. He developed a technique, which he named "Value Analysis" to generate cost saving based primarily on analysis of product function and cost. In 1952 he conducted first "Value Analysis Workshop Seminar".

In 1954 US Navy applied this tool to "cost improvement during design" called "Value Engineering". Result proved so rewarding that the programme was rapidly expanded in 1958. D.Miles was awarded US Navy highest Civilian Honour. This programme was further adopted by US Army Corp. of Engineering; and US Postal Services. In 1971, Us Dept of Health, Education and Welfare adopted "VE" on selected construction project. Perceiving outstanding result of this technique, growing segments of American industry have adopted these concept to improve product and profit, and enhance competitive position. Iyer (1996) has provided a brief history of "VE". Presently the concept and technique of "VE" are showing progressive growth and it is making its headway in both industry and government world-wide.

As the "VE" provides an organized systematic approach to the problem of reducing cost and improving product performance the concept could profitably be applied to Medical Service field also. This particularly suitable project was therefore conceived to test the validity of application of this "industrial tool" to bring about "cost reduction" with "improved performance" in the medical field. The field chosen for present application was Cataract Surgery at our Institution for reasons already mentioned. The result, presented and discussed in this paper, have provided encouraging signal: an estimated saving of Rs. 2,50,000.00 in one year with improved service to the patient, and without omitting or abandoning any essential Pre- or Post- Op medical procedure which is likely to affect result of surgery, and without sacrificing quality in the least.


In conclusion it can be said that technique of "VE" as applied to the present study to rationalize the cost of Cataract Surgery in Eye Clinic of T.M.H has yielded fruitful result.

In is further proposed that this useful technique of "VE" (though primarily an industrial tool) could also be tried in the field of Hospital management to cut unnecessary cost and run the service more cost effectively without sacrificing quality of service.


  1. Parker, Donald E (1988): Value Engineering theory; Soundaram Publisher, Coimbatore; (pp: 1-2) Iyer, S.S.(1996): Value Engineering; Part I: New Age International (P) Ltd. New Delhi; (pp: 57, 60) Iyer, S.S. (1996): Value Engineering: Part III: New Age International (P) Ltd. New Delhi; (pp: 189-228)
  2. Lomash, S. (1997): Value Management: Sterling Publishers Pvt. Ltd. New Delhi, (pp: 57, 60)
  3. "Value Engineering Guide": INVEST, East Zonal Council, Jamshedpur.

* Dept. of Ophthalmology, Tata Main Hospital, Jamshedpur

For correspondence:
MIG-7, Sangam Vihar Jamshedpur - 931011

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