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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)
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 What is Contact Personal Method of


presence processed Intensity attention delivery
Present People Visible, but Personal** Face-to-face
not active*

*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.

Process
Characteristics Less customer contact and customization
(1) (2) (3)

(1)
Front Office
Less
complexity,
less
divergence
and more line
flows (2) Hybrid Office

Shouldice

Back office
(3)

Exhibit 3.1 Customer-Contact Matrix for Processes

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.

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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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Patients

Out of town Local Patients


Patients

Diagnosis by Diagnosis on
Mail Walk-in Basis

NO
Is Reject
operation Operations
required?

YES

Admissions

Operation

Post-Operation
Care for 2 days

Discharge on
4th day

Exhibit 5.1: Process at Shouldice Hospital

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

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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.

Admissions & Pre-Operations


Preparation

Waiting on arrival
20 min

Physical Examination
15-20 min

Is No Send the patients back


Operation
Required?

Yes
Wait
5-15 min

Insurance Coverage
Check-up 10 min

Blood & Urine Test


5-10 min

Occupy Room

Orientation by Nurse
Dinner, Recreation & Sleep by
10 pm

Wake-up, Dressing up and


Sedation (next day)

To Operation Theatre

Exhibit 5.2: Process diagram for admission process at Shouldice Hospital

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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


¾ Work on Saturday with a resultant increase of 20% in the number of
operations
¾ 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 Additional Payback % Capacity


Investments Profits Period Utilization
Option 2: Additional 2,030,000 1,167,000 1.74 yrs 93.3
floor + additional O.R.
Option 3: Additional 2,000,000 943,088 2.12 yrs 88.9
floor + extra working
hour
Option 4: Additional 2,030,000 1,423,456 1.42 yrs 100
floor + O.R. + extra
working hour

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.

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