Question 1. How successful is the Shouldice Hospital? Generate a P&L statement using available information from the case. Treat each of the two operations – hospital and the surgery – separately Compared to other medical institutions that provide a wide array of medical procedures, Shouldice Hospital specializes in one procedure for patients that suffer from abdominal hernias. This specialization allows each doctor at Shouldice Hospital to perform approximately 600 hernia surgeries per year, while doctors at other institutions only perform 25-50 hernia surgeries per year.
As a result, the “Shouldice Method” has been perfected to an unparalleled level for the well-being of the patient. The typical Shouldice patient only experience s 5 days of required recovery time after their surgery, while hernia patients from other institutions typically experience 10 days of recovery time. This expedited recovery time is due to the level of active physical rehabilitation that Shouldice Hospital expects from their patients.
Walking and socializing with others is expected, and Shouldice Hospital has proven that these actions significantly aid in the healing process due to the improvement of the positive mental attitude of the patient. The specialization in one particular procedure as well as the 4 day recovery time allows Shouldice Hospital to offer their surgical procedure at a lower cost than other institutions. This is because Shouldice Hospital has lower overhead costs associated with labor and has fewer investments in capital expenditures since they do not have the wide array of machinery and equipment that you might see at a typical institution.
This savings is passed along to the patient, as Shouldice procedures typically cost $954 ($111 * 4 days + $450 + $60) while other institutions typically charge $2,000 to $4,000 for the same procedure. Additionally, the extremely low turnover rate a Shouldice Hospital demonstrates that this institution is not only a success for the patient, but also to the hospital staff. This level of devotion among the medical staff benefits both the hospital as well as the patients, since seasoned professionals are retained within the institution.
In return for their professional service the hospital provides their employees with a great work/life balance as well as financial rewards in the form of bonuses and profit sharing programs. Lastly, Shouldice Hospital completes hernia surgeries with a lower recurrence rate than traditional hospitals. Due to their specialization in this field of surgery, patients experience complications and require follow-up appointments less than 1% of the time, while traditional hospitals in the United States typically saw around a 10% reoccurrence rate.
This is a great example of how Shouldice Hospital is a leader in their field and the 99% success rate is a great indicator of the overall successfulness of the organization. Please see below for the P&L statements for the Hospital and Clinic Operations: Question 2. How do you account for its successful performance? The Shouldice Hospital prides itself in excelling at the hernia with remarkable results in patients, while providing care at a low price, operating at a low costs, and achieving high profits. By analyzing the patients, the staff, and the service delivery system, one could observe the factors to this hospital’s success.
First, the hospital adopts a stringent and comprehensive patient screening system that minimizes the risk to the hospital. Questionnaires are sent to potential patients and the hospital uses the responses to determine the risk level associated, thus allowing the hospital to properly anticipate and mitigate foreseen risks or avoid them in general, as in the case of internal hernias or overweight problems, which would be rejected before admittance. Another factor to success lies in the patients themselves. Patients are encouraged to be active, sociable, and self-sufficient to a certain extent in order to speed up recovery.
This helps in reducing the level of oversight required from the nurses and also improves turnover. Furthermore, the operation method is world-class because it provides a more reinforced muscle wall in the abdomen and also the avoidance of general anesthetic unless absolutely required. This allows the patients to recover sooner and to experience less discomfort or nausea that is often associated with the aftermath of general anesthetic, which thus lets the patients to be active sooner as well; also, the limited use of
general anesthetic reduces the need to staff more anesthetists, who are expensive at a rate of $300/day, and also reduces the cost of operation for the patients. When patients are more self-sufficient in the recovery process, less oversight from the staff is required and the staff is freed up from mundane tasks such as changing sheets or changing bedpans but could focus more time on counseling the patients to help them recover. This also leads to lower cost in laundry, housekeeping, and nursing.
When costs are kept low and well maintained, salaries offered to staff are able to be more competitive than comparable jobs in the area. When employees are properly compensated, they could focus on the tasks at hand and not have to worry about financial issues or leaving the hospital to look for higher-paying positions. Furthermore, another factor to the hospital’s success is the doctors they hire. The doctors are highly productive and are able to perform 600 or more operations a year, while a typical surgeon elsewhere averages around 25 to 50 operations.
They are also able to share an expensive resource, which is the anesthetist, to help alleviate the cost of operation. Lastly, the doctors experience low turnover, as do the nurses, because they are given opportunities to learn and improve on their skills via training in the Shouldice technique. In addition to the benefit of low turnover, proper training and continuous improvement allows for standardization of the method of operation and minimizes flaws or defects. Lastly, the success of the hospital is attributed to the facility and the culture it fosters.
The hospital encourages interaction between staff members and patients. Hospital staff is encouraged to eat together in the dining room and pick up their meals from the kitchen; hospital administrator is trained to be multi-functional and can pitch in to help one and other during peak times. To encourage interaction and activity among the patients, the hospital offers acres of gardens, uses carpeting to avoid the typical smell of disinfectant, modifies the stairways to allow the patients to be able to climb up after operations, and places entertainment in a common room to encourage patients to walk around and socialize.
These factors help provide an uplifting, supportive environment that leads to happy staff and healthier patients. Question 3. Prepare a Process Flow Diagram from arrival through surgery and determine the capacities at each stage. For this diagram, only indicate major points in the process, e. g. , admitting, examination, operating room, surgeries, etc. Use the actual hours of operation for each step in the process to determine the capacity of each step. What is the bottleneck?
Based on the calculations below, the available beds for patients is the current bottleneck for the hernia operation process. This portion of the process would be the bottleneck if only the 89 beds were utilized and also if the 14 hospital beds were also utilized. Question 4. Do a detailed analysis of potential on-site capacity expansion alternatives (on a per week basis). Assume an average of 3. 5 days stay at the hospital for each patient, including surgery, and Sunday Admits. This means that half the patients spend three days while the other half spends four days.
Assumption: $450 surgical fee / patient; 20% of patients receive general anesthetics; 3. 5 days avg stay; 50 work weeks per yr a. Current Situation (103 beds = 89 beds + 14 hostel rooms) Current Theoretical Capacity = 148 patients / week Current Average Throughput = 6,850 opeartions / 50 weeks = 137 patients / week b. Add 45 more beds (no need for using 14 hostel rooms) •New Theoretical Capacity= 191 patients / week oThe new addition would increase theoretical capacity by 29% from 148 to 191 patients / week.
•New Average Throughput = (137 * 191) / 148 = 177 patients / week •New throughput – Current throughput = 177 patients / week – 137 patients / week = +40 patients / week •# of additional patients per year = 40 patients / week * 50 weeks = 2,000 patients per year •Additional revenue per year = 2,000 extra patients * ($450 surgical fees / patient + 20% of patients receiving $75 general anesthetic) = 2000 * (450 + . 2 * 75) = $930,000 Pro: Additional capacity brings return on investment of approximately 46% ($930,000/$2MM investment), i. e. profitable and sound investment.
Cons: With the additional capacity, the hospital might need to make scheduling changes, such as maximizing the 5 days/week scheduling w/ each doctor, and the nurses might not be able to spend as much one-on-one time with patients as they had used to, which goes against their track record in developing good interpersonal relationships w/ the patients. Furthermore, they would need to increase general operating expenses to cover increased number of patients, such as more kitchen staff, more housekeeping staff, etc. c. Schedule Saturday Operations (would need to use 14 hostel rooms to accomodate)
•New Theoretical Capacity= 177 patients / week oThe new addition would increase theoretical capacity by 20% from 148 to 177 patients / week. •New Average Throughput = (137 * 177) / 148 = 164 patients / week •New throughput – Current throughput = 164 patients / week – 137 patients / week = +27 patients / week •# of additional patients per year = 27 patients / week * 50 weeks = 1,350 patients per year •Additional revenue per year = 1,350 extra patients
* ($450 surgical fees / patient + 20% of patients receiving $75 general anesthetic) = 1350 * (450 + .2 * 75) = $627,750 Pro: Additional capacity generates $627,750 additional revenue per year with no additional investment. Cons: Either current doctors would need to pick up an extra day on their schedule or the hospital would need to hire additional doctors to cover Saturday operations. While this is profitable and the proceeds could be used as an overtime bonus to attract doctors, this is not in line with their goal to promote an environment with regular hours, allowing doctors time to spend with their families.
This is not a guarantee that doctors be enticed enough to adapt to the new schedule either. Conclusion: Based on the analysis above, I believe that the hospital should expand with the $2MM investment to add ~45 more beds. It provides an attractive return, and it does not compromise their current values and relationships with the doctors. If they had chosen to schedule Saturday operations, they would risk demoralizing the current workforce or sending the wrong signal that they would compromise the employees’ work-life-balance for more profit.