Shouldice Hospital

OPERATIONS MANAGEMENT

CASE 1 - Shouldice Hospital

Introduction

Shouldice Hospital, set up in 1945 by Dr. Earl Shouldice, is located near Toronto. It follows the business model of focus on a single standardised service for a narrow target of consumers, rather than to provide customised solution (as in a general clinic or hospital). It focuses on providing quick, convenient, and reliable cure for external types of abdominal hernias. The Hospital uses its own technique, called the Shouldice Method. It is famous for a relatively short post-operative recovery period.

Description

1. Shouldice Hospital provides low-cost medical service in its area of specialization. Use of the Shouldice Method allows patients to recuperate fast (patients get discharged within 3 days of operation). The Hospital optimises the use of its available resources, like surgeons, nurses, medical infrastructure, administration and maintenance facilities. It also manages to keep operating costs low by keeping capital investment in rooms and equipments very low.

2. About 82% of all surgeries at the Hospital are primaries. The remaining 18% involve recurrence of hernias repaired elsewhere. These are more complex,

3. The Hospital has a capacity of 89 beds. There are 5 operating rooms where 33 to 36 operations are performed on an average day. The Hospital follows a 5 day week. It employs 12 full-time surgeons, 7 part-time assistant surgeons, and one anaesthetist. The nursing staff consists of 22 full-time and 18 part-time members. An operating team consists of a surgeon, an assistant surgeon, a scrub nurse, and a circulating nurse. A surgeon's typical day begins at 7:30 A.M. and ends by 4:00 P.M. Each surgeon typically performs 3 to 4 operations each day.

4. Training of a new surgeon in the Shouldice technique is important because the procedure is highly standardised. There is time-based rotation of teams and frequent consultations among doctors.

5. A patient at Shouldice requires minimal post-operative care. Immediately after an operation, patients are encouraged to move about and carry on their day-to-day activities with minimal physical assistance.

6. Employees at the Shouldice have very competitive pay scales. The remuneration has both fixed and bonus components. There is no organization chart, and administrative employees are cross-trained to take over each other's work if required. Nobody is fired.

7. The Hospital relies entirely on word-of-mouth advertising. It performs 145-165 operations per week. In spite of this, there is a backlog of scheduled operations that is as large as 1200 in 1982.

8. Approximately 42% of patients come from the United States. A typical surgery at the Shouldice costs approximately $1029. Operating Costs for the hospital and clinic are close to a total of $4.8 million. Revenues are close to $6.8 million. Thus, operating profits are close to $2 million annually.

Unique Characteristics

1. High Volume Focused Service - only external types of abdominal hernia repaired and mostly primaries; 6850 operations performed in a year in 1982.

2. Unique Surgical Technique - Shouldice Method: separation of muscle layers, more sutures and no screens/meshes

3. Lower Operating Time - 45 minutes for first-time repairs (primaries) and 90 minutes for repairing recurrences

4. Lower cost of operating patients - $640 vis-Ðo-vis $2000-$4000 elsewhere

5. Lower duration of post-operative stay for patients - 3 days as compared to 5-7 days for other hospitals

6. Lower Recurrence - Gross recurrence rate of recurrence for operations performed at Shouldice is 0.8% based on 30 years data, as compared to 10% in general for the USA

7. Lower Surgeon to Operation (per-day) Ratio (0.4)

8. Lower Nurse to Patient Ratio (0.44)

9. Low employee turnover - high remuneration with performance based bonuses, negligible hierarchy

10. Efficient and low cost housekeeping - since patients are always encouraged to ambulate, less soiling of linen and better utilization, only 2 employees run housekeeping.

11. Free Annual check-ups during annual reunion

12. Free Service to clergy and family members

13. Out-of-town patients were diagnosed online using the medical information questionnaire, saving $200-$400

14. Recovery time for patients is 1-4 weeks, as compared to 2-8 weeks in other hospitals

Process Flow Diagram

Process Analysis using Cost and Capacity

A: Cost Analysis

Budget for the Hospital: $ 2.8 million

Budget for the clinic: $2 million

Therefore, Total Budget = Budget for the Hospital+ Budget for the clinic

= $2.8 million + $2 million

= $ 4.8 million

Number of operations per year = 6850 (considering the same as for the year, 1982)

Therefore average cost per operation = $4.8 million/6850 = $701

Total charge to the patient = Hospital stay + Surgical fee

+ Assistant surgeon fee + Anesthetic fee

= 111*4 + 450 + 60 +75

= $1029

Net profit per patient = $(1029-701) = $328

B: Capacity Analysis

The critical resources in this case are:

* Number of operation theatres