As hospitals face increasing pressure to balance strategic priorities and improve the effectiveness and efficiency of care delivery, new research from Antoinette Smith, associate professor in the School of Accounting, reveals that a focus on process excellence can improve a hospital’s competitive position.
The research looked at what happens when hospitals make improvements in three areas: cost per discharge, average length of stay, and conformance quality, defined as compliance with healthcare standards. The study reveals that hospitals that lower costs per discharge and average length of stay achieve greater inpatient market share, while those that make improvements in conformance quality lose market share.
“These findings can help guide hospital administrators on the wider ramifications of operational decisions and underscore the need for a long-term strategic perspective on process excellence,” said Smith. “It should not be viewed as a cost mitigation mechanism, but rather strategically, as a critical source of competitive advantage.”
Published in the August 2018 issue of the International Journal of Production Economics, the research analyzed 288 short-term acute care hospitals in California from 2004 through 2011, examining actual changes in the three key components of process excellence.
The research also found:
• Improvements in conformance quality reduce cost per discharge – a 10 percent increase in conformance quality results in a $210 decrease in cost per discharge, representing approximately $1.89 million in savings per year for a hospital with 9,000 annual discharges.
• Hospitals that reduce cost per discharge see greater profitability – a 10 percent decrease ($2,950) in cost per discharge results in approximately a 1 percent gain in profitability.
• Reductions in cost per discharge in other areas of a hospital, can help mitigate the negative effects of conformance quality on profitability and market share.
“The finding that improving hospitals’ conformance quality tends to be associated with lower market share is alarming,” said Smith. “Improving this measure hinders a hospital’s ability to improve its financial position and to achieve its service-oriented mission of caring for more patients in the surrounding communities.”
What does this mean for hospitals?
“It’s not ‘or’, it’s ‘and’, when it comes to the approach they can take to maintain their competitiveness in a saturated market,” Smith added. “Over the long term, such decisions can strengthen a hospital’s competitive positioning and improve its ability to navigate legislative changes that increasingly favor value-based principles of healthcare management.”