Centre for Health Leadership & Enterprise

Operations Management

Economies of Scale & Scope in Hospitals

Michael Freeman, Nicos Savva (London Business School), Stefan Scholtes

General hospitals across the world are becoming larger (i.e. admitting larger volumes of patients each year) and more complex (i.e. offering more complex portfolios of services to patients with diverse levels of acuity). Although prior work has shown that increased volume is positively associated with patient outcomes, it is less clear how volume interacts with organisational complexity to affect costs across service lines and acuity levels. This paper investigates this relationship using panel data for 14 service lines comprising both elective and emergency admissions across 130 hospitals in England over a period of nine years. Although we find significant economies of scale for both elective and emergency admissions, we also find evidence of negative economies of scope across the two admission types, with increased elective volume at a hospital being associated with an increase in the cost of emergency care. Furthermore, for emergency admissions we find evidence of economies of scope across service lines: Increased emergency activity in one service line is associated with lower costs of emergency care in other service lines. By contrast, we find no evidence of such economies of scope across service lines for elective admissions. Our findings have implications for individual hospitals and for the organisation of regional hospital systems. Specifically, at the hospital level our findings suggest that growth strategies that target elective patients may have unintended negative productivity implications for emergency services that can erode any gains in elective services. At the regional level, our findings offer support for the reorganisation of regional hospital systems toward general hospitals that focus on the provision of emergency care across a full range of services, complemented by high-volume clinics that focus on elective services in a single service line.

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Separate & Concentrate: Accounting for Patient Complexity in General Hospitals

Ludwig Kuntz (Cologne), Stefan Scholtes, Sandra Sülz (Rotterdam)

General hospitals have to manage the conflicting operational requirements of routine patients, whose admissions are planned and whose services follow a priori specified standard treatment plans, and complex patients, whose admissions are unplanned and who may have complicating chronic conditions that interfere with standard procedures. To overcome this tension, scholars have suggested replacing general hospitals with two types of organisations "value-adding process clinics" for routine patients and "solution shop hospitals" for more complex patients. Using over 250,000 patient discharge records from 60 German hospitals and 39 high-mortality disease groups and focusing on in-hospital mortality as the outcome, we provide empirical evidence to support this proposal from a service quality perspective. First, after controlling for hospital selection we find, somewhat surprisingly, that mortality rates for complex patients in a disease group increase with the number of hospital admissions in the disease group, suggesting that the inevitable reduction in hospital patient volume as the routine patients in each disease group are separated out into newly created value-adding process clinics would improve service quality for the remaining complex patients in solution shop hospitals. Second, we find that the beneficial effect of a hospital's focus on a particular disease group is most pronounced for routine patients and there is no evidence in our data that disease focus improves quality for the most complex patients in that group, suggesting that value-adding process clinics are best organised as focused factories while solution shop hospitals may maintain a broad portfolio of patient services. Third, we show that solution shop hospitals can further improve service quality for complex patients by adopting a disease-based rather than treatment-based departmental routing strategy for newly arriving patients. A counterfactual analysis estimates that the proposed reorganisation for our sample could reduce mortality by 5.3 per cent for routine patients treated in separate disease-focused value-adding process clinics and by 9.2 per cent for the remaining patients in solution shop hospitals with a disease-based routing strategy.

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Gatekeepers at Work: An Empirical Analysis of a Maternity Unit

Michael Freeman, Nicos Savva (London Business School), Stefan Scholtes

Clinicians often perform two roles: They provide a specific type of service to patients and, at the same time, act as gatekeepers to more expensive, more specialised services. A general practitioner may attempt to treat a patient herself or refer her to a specialist in a hospital, a midwife may deliver a baby herself or call on an obstetrician to lead the delivery, an emergency care doctor may attempt to resolve a patient's problem in the emergency room or admit her to the hospital. Effective gatekeeping is crucial in regulating access to appropriate care, to avoid ineffective under-treatment and costly over-treatment. In this paper, we use a detailed operational and clinical dataset from a maternity hospital to investigate how workload affects decisions in a gatekeeper-provider context, specifically how gatekeepers change the service that they provide themselves and the rate at which they refer to costly specialists when they become busy. The data suggests that gatekeeper-providers (midwives in our context) make substantial use of two levers to manage their workload (measured as patients per midwife): They ration resource-intensive discretionary services (epidural analgesia) for patients with non-complex needs (mothers with spontaneous onset of labour) and, at the same time, increase the rate of specialist referral (physician-led delivery) for patients with complex needs (mothers with pharmacologically induced labour). The workload effect in the study unit is surprisingly large and comparable in size to those for leading clinical risk factors: After controlling for potential confounding factors, we find that when workload increases from two standard deviations below to two standard deviations above the unit's average workload, low-complexity patients are 29% less likely to receive an epidural, leading to a cost reduction of 8.7%, while high-complexity patients are 14.2% more likely to be referred for a physician-led delivery, leading to a cost increase of 2.6%. These observations are consistent with overtreatment at both high and low workload levels, albeit for different types of patients, and highlight the importance of workload smoothing in gatekeeper-provider contexts.

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Stress on the Ward: Evidence of Safety Tipping Points in Hospitals

Ludwig Kuntz (Cologne), Roman Mennicken (RWI Essen), Stefan Scholtes

Do hospitals experience safety tipping points as workload increases? Safety tipping points can occur when managerial escalation policies are exhausted and workload variability buffers are depleted. Front-line clinical staff is forced to cut corners and, at the same time, becomes more error-prone as a result of elevated stress hormone levels. In this study we confirm the existence of workload-related safety tipping points for in-hospital mortality using the discharge records of 89,568 patients across six high-mortality-risk conditions from 244 clinical departments of 87 German hospitals. From this data we estimate that between 15.2% and 19.2% of the 8,562 in-hospital deaths in the sample could have been avoided if the patients had not been exposed to organisational workload beyond the tipping point. These effect size estimates are commensurate with research on avoidable adverse events in hospitals.

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Related news story: When slacker is safer: the dangers of exceeding the 'tipping point'
We all have a tipping point: a pressure point beyond which we are no longer efficient and effective, but just stressed and confused. For most of us reaching the tipping point just means that productivity starts to suffer but, for some, particularly in the healthcare industry, that tipping point could be a matter of life or death. Indeed, new research in clinical settings has major implications for the way we think about capacity and stress in the workplace. The research, conducted by CCHLE's Professor Stefan Scholtes, together with two German collaborators, has demonstrated conclusively that far from maximising efficiency, exceeding a capacity "tipping point" on a hospital ward can have dire consequences. Read more

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Physicians in Leadership: The Association between Medical Director Involvement and Staff-to-Patient Ratios

Ludwig Kuntz (Cologne), Stefan Scholtes

In a hospital environment that demands a careful balance between commercial and clinical interests, the extent to which physicians are involved in hospital leadership varies greatly. This paper assesses the influence of the extent of this involvement on staff-to-patient ratios. Using data gathered from 604 hospitals across Germany, this research evidences the positive relationship between a full-time medical director (MD) or heavily involved part-time MD and a higher staff-to-patient ratio, both for physicians and nurses. The results contribute to the sparse body of empirical research on the effect of clinical leadership on organisational outcomes.

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Outpatient Appointments via "Choose and Book"

Houyuan Jiang, James Pang (Lancaster), Sergei Savin (Wharton)

"Choose and Book" is an electronic outpatient appointment system in the NHS. We study how we the service provider should release their time slots to "Choose and Book". Theoretical models are proposed from which managerial insights are derived.

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Contracts Based on Payment by Results

Houyuan Jiang, James Pang (Lancaster), Sergei Savin (Wharton)

The NHS has moved from the old contracting system based on the block payment to a new contracting system based on payment by results. We design and analyse several contracting mechanisms in the principal-and-agent framework, and compare new contracting methods with the block payment method.

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