Shouldice Hospital Limited Case Study

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  1. How well is the hospital currently utilizing its beds?

Using the Capacity utilization rate formula on the data given on the table, these are the following beds used per day and subsequently per week that we got:

Monday60/9066%
Tuesday90/90100%
Wednesday90/90100%
Thursday90/90100%
Friday60/9066%
Saturday30/9033%
Sunday30/9033%

Then, using the data’s given to compute for the per week computation, we got:

90 beds x 7 days/ week = 630 beds available in a week

30 patients x 3 days x 5 days per week = 450 beds utilized

450 beds utilized / 630 availble beds = 71.43%

The hospital is currently utilizing 71.43% of their beds, as stated in our last meeting this level of utilization is actually an ideal operating point. To increase its rate of utilization might decrease the service quality. This also gives flexibility to the operations for unforeseen events.

  1. Develop a table to show the effects of adding operations on Saturday. Assume that 30 operations would still be performed each day. How would this affect the utilization of the bed capacity? Is this capacity sufficient for the additional patients?
Beds Required
Check-In DayMondayTuesdayWednesdayThursdayFridaySaturdaySunday
Monday303030
Tuesday303030
Wednesday303030
Thursday303030
Friday
Saturday30*30*30*
Sunday303030
Total90*9090906060*60*

Adding operations on Saturday will give the following utilization rate:

90 beds x 7 days/ week = 630 beds available in a week

30 patients x 3 days x 6 days per week = 540 beds utilized

540 beds utilized / 630 beds available = 85.71%

Adding operations on Saturday will improved the utilization rate of beds from 71.43% to 85.71%. It is still sufficient; however, we might risk the service quality and will decrease the flexibility of their operations against unforeseen events.

  1. If operations are performed only 5 days a week, 30 per day, what is the effect of increasing the number of beds by 50%? How many operations could the hospital perform per day before running out of bed capacity? How well would the new resources be utilized relative to the current operation? Recalling the capacity of 12 surgeons and five operating rooms, could the hospital really perform this many operations? Why?

If beds are increased by 50% but surgery is held at 30 per day, there will be an increase in bed capacity but the added capacity is wasted because it will not be effectively utilized. But, with the added beds, Shouldice Hospital can exploit the said increase in capacity by performing more surgeries. Surgeries could move from 30 per day to 45 per day. A 50% increase in bed capacity needs to be matched with 45 surgeries Monday, Tuesday, Wednesday, and Thursday to fully utilize facilities 4 days per week.

Also, we must take note that if 30 surgeries are performed each day in 5 rooms, then 6 are performed in each room. To perform 45 per day, the rooms will need to be occupied 9 hrs per day or more rooms will need to be added. Extending the hours may complicate the smooth recovery process used at Shouldice hospital. More operating rooms might be needed to complement the increase in bed.

  1. If adding bed capacity costs about $100,000 per bed, the average rate charged for the hernia surgery is $2,400, and surgeons are paid a flat $800 per operation, can Shouldice justify any expansion within a 5-year time period?

With the given 5 operating rooms, having a maximum of 40 operations a day, this is the new table of beds required in Shouldice Hospital:

Beds Required
Check-In DayMondayTuesdayWednesdayThursdayFridaySaturdaySunday
Monday404040
Tuesday404040
Wednesday404040
Thursday404040
Friday
Saturday
Sunday404040
Total80120120120804040

Now, we compute the Revenues that will be generated if the expansion will push through:

$1600/operation (average rate/operation – surgeon’s fee; $2,400 – $800)

Expansion will bring total 200 operations/wk (40 operations per day for 5 days in a wk) = 10,400 operations/yr

$1600 * 10,400 operations/yr = $16,640,000/yr

Then, we compute for the Cost that was incurred by the beds:

$100,000 per bed * 30 beds = $3,000,000

Finally, we  compute the value that Shouldice hospital will get but subtracting the cost to the revenues that will be earned in the 5-year period:

$ 83,200,000 ($16,640,000 * 5 yrs) – $3,000,000 = $80,200,000

The expansion decision is a very good investment. It gives a very high returns to Shoouldice hospital.

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Case | HBS Case Collection | April 1983 (Revised June 2003)

Shouldice Hospital Limited

by James L. Heskett

Abstract

Various proposals are set forth for expanding the capacity of the hospital. In assessing them, serious consideration has to be given to the culture of the organization and the importance of preserving it in a service delivery system. In addition to issues of capacity and organizational analysis, describes a well-focused, well-managed medical service facility that may well point the way to future economies in the field.

Keywords: Expansion; Health Care and Treatment; Performance Capacity; Organizational Culture; Service Delivery; Growth Management; Strategic Planning; Quality; Social Enterprise; Health Industry; Canada;

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