Shouldice Hospital

Term 2 Operations Management

Submitted to

Prof. Janat Shah

on 18 October 2005

Team 1

Abdullah Mehtab (0511141)

Ankur Dhawan (0511150)

Debarupa Das (0511162)

Sanjay Sahai (0511183)

Shankar M. (0511187)

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TABLE OF CONTENTS

Introduction.…………………………………………………………………………………………………………2

Shouldice as a service provider……………………………………………………………………………2

Nature of service process in Shouldice………………………………………………………………..2

Key Differentiators……………………………………………………………………………………………….5

Process flow at Shouldice…………………………………………………………………………………….6

Process Analysis…………………………………………………………………………………………………..9

Generation of options………………………………………………………………………………………..11

Evaluation and Recommendation………………………………………………………………………14

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1. Introduction

Established in 1945 by Dr. Earl Shouldice, Shouldice Hospital, located on the

outskirts of Toronto, is renowned for Hernia operations that emphasize early

ambulation after surgery. The hospital follows a unique “Shouldice” method which

aims to decrease the post-operative recovery period.

2. Shouldice as a service provider

Shouldice Hospital comes under the category of a low-cost medical service provider

in its area of specialization. The hospital follows a standardized work method that

focuses on only external types of abdominal hernias. It leverages high utilization of

all its resources like staff, beds, operation theatres and equipments as the

Shouldice Method encourages patients recuperate fast and get discharged within 3

days after operation. The process is designed so as to optimize as much as possible

the usage of surgeons, nurses, medical infrastructure, administration and

maintenance facilities. Shouldice also manages to keep operating costs low by

keeping capital investment in rooms and equipments very low.

3. Nature of service process in Shouldice

In terms of the dimensions of customer (patient) contact, Shouldice hospital falls

under the category of Hybrid Office. Analyzing Shouldice under various dimensions

of customer contact, we find –

3.1 Customer Contact Dimensions:

Physical presence

What is processed

Contact Intensity

Personal attention

Method of delivery

Present People Visible, but not active*

Personal** Face-to-face

*Patient can not customize the operation to be performed. It would be based on the

diagnosis by the doctors of Shouldice.

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** The hospital takes into account the condition of each patient before operation –

sends questionnaire beforehand to determine the type of hernia, and determines

risks like overweight and heart condition. If risks found, it sends sheets outlining

weight loss program.

3.2 Customer (Patient) contact points/schedules

3.2.1 Contacts with the patient on the day before operation

1. Examination upon arrival in one of the examination rooms by surgeons: 15-

20 minutes

2. Meeting one of the two admitting personnel in the accounting office: 5-10

minutes

3. Occasionally nervous patients asked many questions and were answered by

the receptionists.

4. In nurses’ stations, patients are checked for hemoglobin and blood: 5-10

minutes

5. Nurses’ orientation at 5 pm: It discussed what to expect, drugs to be

administered and the post-operative routine.

3.2.2 Contacts with the patient on the day of operation

1. During operation, the circulating nurse monitored the patient’s comfort.

2. Immediately after operation, patients are invited to get off the operating

table and walk to the post operating room. This is done to boost the morale

of the patients.

3. Throughout the day, nurses and housekeepers talk to the patients (operated)

and encourage them to exercise.

4. Patients are also encouraged to walk down to the dining room and help the

newly admitted patients.

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3.2.3 Post-operation contacts

1. Patients are encouraged to explore the premises, talk to the people on the

hospital and make friends.

2. Patients are given the free hand to have the run of the hospital.

As per the framework of Customer-Contact Matrix for service processes,

Shouldice falls in the Hybrid office category.

The process and principle followed by Shouldice involves standard services with

some options available as found in Hybrid Office.

The process of operation in Shouldice involves high patient contact (as

mentioned above), but less customization. Only external types of abdominal

hernias were repaired at Shouldice.

Exhibit 3.1 Customer-Contact Matrix for Processes

(3) (2) (1)

Less customer contact and customization

Front Office

Hybrid Office

Back office

Shouldice

(1)

(2)

(3)

Less complexity,

less divergence

and more line flows

Process Characteristics

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In fact, 82% of all operations performed at Shouldice in 1982 represent the

most common first-time repairs (primaries), involving straightforward operating

procedures. Only about 18% cases involved customization where certain

complex procedures are used for patients suffering from recurrences.

As far as the process complexity is concerned, Shouldice mostly follows a simple

procedure for operation invented by Dr. Shouldice (Shouldice Method). As a

result, the process divergence is also moderate, deviating only in certain

complex cases. Only the recurrence and critical cases of hernia repairs entailed

more complexity in the operating procedure.

4. Key Differentiators

The following features differentiates Shouldice from its other competitors and

account for its performance –

4.1 Operation-wise:

• High Volume Focused Service

Only external types of abdominal hernia repaired and mostly primaries. 6850

operations performed in a year in 1982.

• Unique Surgical Technique –

Shouldice Method: separation of muscle layers, more sutures and no

screens/meshes

• Lower Operating Time

45 minutes for first-time repairs (primaries) and 90 minutes for repairing

recurrences

• Lower cost of operating patients - $640 vis-à-vis $2000-$4000 elsewhere

• Lower duration of stay for patients

3 days as compared to 5-7 days for other hospitals

• Lower Recurrence

Gross recurrence rate of recurrence for operations performed at Shouldice is

0.8% based on 30 years data.

• Lower Surgeon to Operation (per-day) Ratio (0.4)

• Lower Nurse to Patient Ratio (0.44)

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• Efficient and low cost housekeeping

Since patients are always encouraged to ambulate, less soiling of linen and

better utilization. Only 2 employees run housekeeping.

• Free Annual check-ups during annual reunion

• Free Service to clergy and family members

4.2 Organization-wise:

• Hospital: Not-for-profit , Clinic: for profit

• No Formal Organization Chart

Employees spanning across functions

• No Advertising/Marketing activities

• Regular Working Hours for doctors

A surgeon’s day typically ends by 4 pm.

• High Pay Scale for employees and profit sharing

• Unique ambience

Fully carpeted, no telephone or television in rooms so that for these facilities,

patients have to walk, specially designed steps having small rise

5. Process flow at Shouldice

Shouldice Hospital gets patients from both from US and Europe. Patients staying

with in 50 miles radius are classified as Local Patients and others are classified as

Out of town Patients. Out of town patients account for 58% of the total patients

while local patients are 42% of the total number of patients. Out of town patients

don’t need to visit the hospital, they get diagnosed through mail from doctors and

staff using a standard form. After the diagnosis patients are called on a fixed date

and admitted into the hospital. Admission procedure is being described in next

section in detail. Patients are operated upon on next day of the admission and stay

further for 2 days in hospital.

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5.1 Admission Process

After the diagnosis patients are called on for admission on a specific day. Patients

arrive during 1 p.m. to 3 p.m. After a waiting time of 20 minutes patients are

physically examined by surgeons. Examination takes around 15-20 minutes. On the

basis of this examination patients are formally accepted for operation. After

checking for insurance coverage by admitting personnel, blood & urine samples are

Out of town Patients

Local Patients

Diagnosis on Walk-in Basis

Diagnosis by Mail

Admissions

Operation

Reject Operations

Discharge on 4th day

Post-Operation Care for 2 days

NO

YES

Patients

Is operation required?

Exhibit 5.1: Process at Shouldice Hospital

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taken. Thereafter the patient is directed towards his/her room. Later in the day,

there is an orientation session by the nurse. After medical preparation on next day,

patient is taken to the operation theater where operation is carried out.

Exhibit 5.2: Process diagram for admission process at Shouldice Hospital

Admissions & Pre-Operations Preparation

Waiting on arrival 20 min

Physical Examination 15-20 min

Wait 5-15 min

Occupy Room

Blood & Urine Test 5-10 min

Insurance Coverage Check-up 10 min

Wake-up, Dressing up and Sedation (next day)

To Operation Theatre

No

Yes

Send the patients back

Orientation by Nurse Dinner, Recreation & Sleep by

10 pm

Is Operation Required?

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5.2 Operation Process

Operation process is carried out by a senior surgeon with assistance from a junior

surgeon and 2 nurses. One of the nurses is a circulating nurse who administers

anesthesia to patient depending on his/her condition before and during the

operation. A primary operation typically takes 45 minutes. After the operation

patient is ambulated to post operation room by the surgeon. Then the surgeon

returns back for his second operation. In pre-lunch session a doctor takes care of

four operations, one being that of recurring hernia which takes around 90 minutes.

6. Process Analysis

Currently on an average, 30-36 patients get operated everyday. In peak period

average number of operations per day reaches to 33 and in lull period it drops to

29. The capacity of the hospital is 89 beds, hence we can assume an average

turnover of 30 patients per day.

Two most important processes for Shouldice hospital are –

a) Admission Process

b) Operation process

The analysis of these processes for capacity utilization is as follows

6.1 Admission process

Number of patients called for examination process every day is not mentioned in

case. Assuming 35 patients are given appointment everyday out of which around 5

patients are found either heavy weight or they don’t have hernia. These patients

are sent back. They also have 14 additional hostel rooms in case some patient

cannot be assigned room on that day. The capacity of examination room can be

calculated as follows

Time required for examination 20 minutes/patient Number of patients examined 3 per hour Total number of patients examined in 3 hours 9

Total capacity of 6 examination rooms 54

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After this patients are sent to see one of the two admitting personnel. The capacity

of this step can be calculated as follows

Time taken by admitting personnel 10 minutes/patient

Maximum patient served in 3 hours 36

Hence admission process cannot handle more than 36 patients with current

resources. But as hospital itself cannot handle more than 30 patients hence

bottleneck is not admission process. The capacity utilization for examination step is

only 55.55% (30/54)

6.2 Operation Process

Assuming number of recurrence operations in a day as 5 (18% of 30 operations)

the hospital is scheduling all of them in the morning session. In general a primary

operation requires 1 (45 minutes + 15 minutes interval) to be completed.

Hence in the afternoon session of 3 hours (1 pm to 4 pm), each surgeon can

perform 3 operations. Therefore total number of operations possible is 35 in a day,

which is equal to the peak demand faced by the hospital.

In general, the capacity utilization of operations process is running at 85.7%

(30/35).

6.3 Scheduling of nurses

The number of nurses working in the morning session is 10 (2 per Operation Room)

while in the afternoon session, the number of nurses is 14 as 2 nurses are required

for admission process.

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7. Generation of options

The following is the current financial scenario of the Shouldice Hospital.

Existing Scenario

No of beds 90 Avg. stay per patient (days) 3 No. of operations per day 30 Bed Utilization 90 No. of working days 250 Total Operations in a year 7,500 Revenue per Operation $1,029 Total Operating cost $4,800,000 Op. Cost per operation $640 Profit per operation $389 Surgeons per hour wage $24

The options available to expand the hospital’s capacity are

Work on Saturday with a resultant increase of 20% in the number of

operations

Invest in constructing an additional floor that would increase the capacity by

50% in combination with the following:

• Build an additional operation room

• Work one hour overtime post-lunch to increase the number of operations

per day

• Build an additional operation room and work one hour overtime post-

lunch

To decide upon the plan of action we need to evaluate the outcomes of the above

mentioned four options.

Option 1: Work on Saturday

This option results in a 20% increase in the number of operations performed.

However it would also entail an increase in the salary expenses, which we assume

to be 10%. The details of cost benefit analysis are as follows:

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Option 1

Total no of operations 9,000 % increase in operating cost 10 New operating cost $5,280,000 Op. cost per operation $586.7 Profit per operation $442.3 Additional profit $1,063,500

As can be seen from the above table, this option generates an additional profit of

$1.06 million. However the upheaval it would cause among the surgeons in the

hospital makes it a difficult choice to make, what with the prevailing culture of

allowing the doctors to spend ample time with their families.

Option 2: Build an additional floor and an additional operating room

By doing this we increase the bed capacity of the hospital to 135. With an extra

operating room we also ensure an increase in the number of operations per day to

42. This option involves an investment of $ 2 million for the additional floor and $

30,000 for the operating room. Hence the viability of this option depends on the

additional profit that is made and the payback period for the investments. The

financial details of this option are as follows:

Option 2 Total Investment $2,030,000 New bed capacity 135 Avg. stay per patient (days) 3 No. of operations per day 42 Bed Utilization 126 No of working days 250 Total no of operations in year 10,500 Increase in no of operations per year 3,000 Profit per operation $389 Additional profit $1,167,000 Payback period (years) 1.74 % Capacity utilization 93%

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Option 3: Build an additional floor and work for one hour overtime

In this option the number of operations performed per day increases to 40. Apart

from the investment of $ 2 million required for the additional floor, this option

would also require an increase in the wages of the surgeons who would be required

to work an extra hour post lunch. This increase in wage is calculated using the

hourly wage rate of the surgeons and the overtime they work. The calculations are

shown below:

Option 3 Total Investment 2,000,000 New bed capacity 135 Avg. stay per patient(days) 3 No. of operations per day 40 Bed Utilization 120 No of working days 250 Total no of operations in year 10,000 Increase no of operations per year 2,500 Operating cost 6,400,000 Overtime salary expense 29,411.8 Total operating cost 6,429,412 Op. cost per operation 642.9 Additional Profit 943,088.2 Payback period(years) 2.12 % capacity utilization 88.9

Option 4: Build an additional floor, an operating theatre and work for one

hour overtime

This involves infrastructural investment of $2.03 million and also an increase in the

wage of the surgeons as mentioned in the previous option. In this option the

number of operations performed per day increases to 48. However we proceed with

the calculations using 45 as the number of operations per day, since that is the bed

capacity available. The details are given below:

Option 4 Total Investment $2,030,000 New bed capacity 135 Avg. stay per patient(days) 3 No. of operations per day 45

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Bed Utilization 135 No of working days 250 Total no of operations in year 11,250 Increase no of operations per year 3,750 Operating cost $7,200,000 Overtime salary expense $35,294 Total operating cost $7,235,294 Op. cost per operation $643 Additional Profit $1,423,456 Payback period(years) 1.43 % capacity utilization 100

8. Evaluation and Recommendation

Of the four options, we exclude option.1 from further evaluation as it involves

human relations problem even though it is a profitable venture. The evaluation of

remaining three options is given below.

Total

Investments Additional Profits

Payback Period

% Capacity Utilization

Option 2: Additional floor + additional O.R.

2,030,000 1,167,000 1.74 yrs 93.3

Option 3: Additional floor + extra working hour

2,000,000 943,088 2.12 yrs 88.9

Option 4: Additional floor + O.R. + extra working hour

2,030,000 1,423,456 1.42 yrs 100

The chosen option must not only generate maximum profits, but it should also

maximize the capacity utilization of the hospital beds. In addition, it would be

highly preferable to have as least a payback period as possible. Of the remaining

three options, we find that Option 4 yields 100 % capacity utilization. The additional

profit earned can be used to pay back the investments in 1.42 yrs which is the least

among all the alternatives. Hence we would recommend option 4 to Shouldice

Hospital.