Shouldice Hospital Case Solution

Q. What are the unique features of Shouldice’s services, as compared to that of a typical hospital? A. The hospital focused on this new procedure for treatment of external types of abdominal hernias. Some differentiating features of the Shouldice process were the arranging of abdominal muscles into three distinct layers, reinforcing the abdominal wall with six rows of sutures and did not involve any insertion of screen and mesh under the skin. Beyond the surgical procedure, it was the service process of the hospital that differentiated it from others. •The patients were sedated in their rooms prior to being taken to the operating rooms. The hospital encouraged the patients to explore the premises, talk to other people about their problems and make new friends during their stay. •The patients were encouraged to move around freely even right after the operation. Lack of telephones or televisions in their rooms also encouraged patients to move about to take a call or watch television. • Every square foot of the hospital was carpeted except the operating rooms to give a unique experience to the patients. Ministers were treated for free and parents accompanying children were allowed free stay. The unique process followed by the hospital helps it to better serve its patients.

While the typical recurrence rate for the hernia approaches 10%, the gross recurrence rate for all operations performed at Shouldice was only 0. 8%. The average patient stay at Shouldice was 3-4 days, which was way below the normal 7-8 days for general hospitals. The patients needed 1-4 weeks of rest compared with 2-8 weeks for the general procedure. Compared with the $2,000-4,000 cost of the operation in general, the cost of the entire procedure at Shouldice was only around $900 (excluding travel). The customer orientation was rounded off by an annual reunion in mid-January where the doctors provided free checkup to its alumni.

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The medical staff was unique in the sense that most doctors were interested in having balanced personal and professional lives. Also, any doctor who patient returned with recurrence was asked to look into the case again. The nurse-to-patient ratio and housekeeping staff was low since patients needed minimal physical assistance. Employee turnover was also low since the hospital cared for its employees by not laying off anyone and giving bonuses. The administrative staff had working knowledge of others’ tasks and helped each other out whenever needed.

Using the concept of Customer-Contact Matrix, we believe that Shouldice Hospital fits into the Hybrid Office Category. The three main characteristics of a Hybrid Office have been briefly explained in light of Shouldice Hospital’s features: •A Hybrid Office has moderate levels of customer contact and standard services with some options from which the customer chooses. In Shouldice, the doctors and administrative staff, though highly supportive of the patients, still spent much of their time in activities not involving interaction with the patient. •The workflow is complex and some customization exists in the process performance.

To elaborate, every patient is unique and treatment requires some degree of customization to take this uniqueness into consideration. Further, there are 2 types of procedures depending on whether the case is a first-time case or a recurrence. •The sub-processes are repeated periodically as part of the parent process. For instance, patients exercise repeatedly and periodically at Shouldice as a part of their treatment process. Further special features include: •The treatment technique used for Hernia was much superior compared to others and included recreational activities that encouraged healthy environment for the patients’ quick recovery. The way the hospital handled patients is another feature. At all points of patient contact, hospital staff would be encouraging and improve the morale of the patient. They would be motivated to exercise by nurses and housekeepers. The hospital’s administrative structure was such nearly everyone had a working knowledge of others’ tasks and helped each other out rather than being involved in only specific tasks, unlike in other hospitals. The hospital’s concern for employees reflected in its low turnover also keeps employees and therefore patients satisfied. The facility, designed by Dr. Byrnes Shouldice, ensured that patients would have to walk and be mobile. Further, efforts were taken to ensure that the place did not seem like a hospital but had a more positive image in the eyes of the patients. Q. As Dr. Shouldice, what actions, if any, would you take to expand the hospital’s capacity? We describe the processes in an average day at Shouldice: PATIENT’S AVERAGE DAY- morning (6:45 am- 12:30 pm) Starting time: 6:45 am 7:25- 7:30 am 8:25am PATIENT’S AVERAGE DAY- afternoon (1 pm- 4 pm) CAPACITY CALCULATIONS

The following gives capacity calculations for the various resources in the system. 1. OPERATION THEATER Minimum time for surgery : 45 mins (82%) Maximum time for surgery: 75 mins (18% average 60-90 mins) Average time for surgery: 50. 4mins Allowing for delays, surgery time: 55 mins Morning session: 5 hours Afternoon session: 3 hours Maximum capacity of 5 op rooms: (5*60/55)*5+(3*60/55)*5= 40 operations/ day = 40 operations /day = 200 operations/ week 2.

HOSPITAL BEDS Number of beds available in hospital: 89 Number of beds available in clinic : 14 Total number of beds available : 103 Maximum number of patients handled by (non-empty) system: 103*5/3 (average stay of each patient is 3 days) = 171 patients/ week In this system, bottleneck is in the hospital bed Hence, maximum number of patients treated a week: restricted to 171 Actual value (from case) : 145- 165 EVALUATION OF OPTIONS We proceed to evaluate the various options available to the management at Shouldice.

Option 1: Adding Beds and utilizing Operation room to full capacity Investment $ 2 Million Costs per patient admitted: 2000000/(155*50) = $258 (15 patients admitted per week for 50 working weeks, 2 weeks maintenance; budget costs estimated per year for clinic were $2 million as per 1983) Revenue per patient 450 +0. 49*60 = $479. ($450 surgical fees, 49% of assistant fees towards revenue) Profits per patient (479. 4-258) = $221. 4 Increase in profits (per year) 221. 4*45*50 = $498,150 (By using operation rooms to maximum utility, we can operate (200-155) or 45 patients more, leading to increased profits) Time for recovery of costs = $2,000,000/498150 = 4. 01 = 4 years Option 2: Working on Saturdays

New budget allocation to clinic for increased work hours 2000000*300/250 = $2. 4mn Costs per patient admitted: = $258 Revenue per patient 450 +0. 49*60 = $479. 4 Profits per patient (479. 4-258) = $221. 4 Increase in profits (per year) 221. 4*31*50 = $343,170 By working on Saturdays, we can accommodate (31*6-155) or 31 patients more, leading to increased profits) Note: Introduction of work on Saturday is likely to be met with stiff opposition by the doctors, hence could require more analysis and could lead to more problems like non cooperation, etc. Option 3: Construct a new hospital with similar capacity in the US We start by calculating the total cost of constructing the hospital of a similar design and capacity in US. We assume land and construction costs to be similar across the two countries. To calculate the construction cost of the clinic, we scale down the cost of one hospital level.

Since one hospital level houses 45 patients and one of the clinic levels has room to house 14 patients, we use this information to get the construction cost of the clinic. We assume the land cost to be 40-50% of the construction cost and this value contains enough margins for miscellaneous costs. Finally, we calculate the time taken for the hospital to recover its fixed cost for two situations. In the former case, we consider only the profits from the clinic while in the latter case, we also include the profits from the increase the fee by the minimum Airline costs USA patients would save on.

Cost of adding one level to the hospital= $2,000,000 Cost of constructing a similar hospital= 3 * $2,000,000 (The current hospital has 3 levels) = $6,000,000 Cost of adding one level of clinic= ($2,000,000 * 14) / 45 (Each hospital level has 45 beds, one clinic level has 14 beds) = $650,000 Cost of constructing a similar clinic= 4 * $650,000 + 5 * $30,000 (The current clinic has 4 levels, 5 operating rooms) = $2,750,000 Total cost of construction= Cost of Hospital + clinic = $6,000,000 + $2,750,000 = $8,750,000 Cost of land= 45% of construction costs We assume the land cost to be 40-50% of construction cost) = $4,000,000 Total cost of hospital project= $12,750,000 Profit to clinic from each patient= $220 (Shown above in Option 1) Average number of patients per week= 155 Total number of weeks in operation per year= 50 Total profit from new hospital per year= $220 * 155 * 50 = $1,700,000 Increased fees to recover capital costs= $200 (Hospital charges minimum Airline cost that USA patients save) Total profit from increased fees= $1,550,000 Time taken to recover cost if no increase in fees= $12,750,000 / $1,700,000 7. 5 years (approx. ) Time taken to recover cost with increased fees= $12,750,000 / $3,250,000 = 4 years (approx. ) This option takes care of a lot of problems faced by the hospital. The need for the hospital to increase the working hours of the employees, as was the case in the last two options, does not exist since the new hospital would need new employees. Since 42% of Shouldice patients belong to US, it also reduces the load on the present setup. The hospital also does not have to deal with unhelpful government regulation in Canada.

The hospital will be able to handle the problems of patients going to unqualified doctors since it will give such patients the option of coming directly to them. The service quality of the hospital cannot be maintained if it increases capacity at its current site and hence it must look to setup new facilities to maintain its standards and service more patients closer to their home. The capital cost incurred by the hospital can also be recovered within a period of 4 years by a small increase that the US patients were paying anyway. We feel that the management of Shouldice hospital should go with this option.


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