CASE Kind Edward Hospital

CASE: KING EDWARD HOSPITAL

by: Alvarado, Benipayo, Ong-Lopez, Sangalang, Tenorio, Wong

Question 1:

How well is the hospital currently utilizing its beds?

Solution 1

• Capacity Utilization Rate = Actual beds utilized/Available beds

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

• 90 beds x 7 days per week = 630 beds available per week

• Capacity Utilization Rate Per Week = 450/630 = 0.7143 or 71.43%

Question 2:

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?

Solution 2

• Capacity Utilization Rate = Actual beds utilized/Available beds

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

• 90 beds x 7 days per week = 630 beds available per week

• Capacity Utilization Rate Per Week = 540/630 = 0.8571 or 85.71%

Interpretation

• The capacity utilization rate averaged in a week would increase from 71.43% to 85.71% if adding 30 operations every Saturday.

Is the capacity sufficient enough?

• The capacity is sufficient enough for the additional patients given that the projected capacity utilization rate is 85.71% which is less than the ideal capacity utilization of a 100%.

Question 3

Now look at the effect of increasing the number of beds by 50%. a) How many operations could the hospital perform per day before

running out of bed capacity? (Assume operations are performed 5 days per week with the same number performed on each day.) b) How well would the new resources be utilized relative to the current operation?

c) Could the hospital really perform this many operations? Why?

Solution 3A

• 90 + (90 x 0.50) = 135 bed capacity• 30 + (30 x 0.50) = 45 operations per day

before running out of bed capacity

Solution 3B

• Capacity Utilization Rate = Actual beds utilized/Available beds

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

• 135 beds x 7 days per week = 945 beds available per week

• Capacity Utilization Rate Per Week = 450/945 = 0.4762 or 47.62%

• Relative to the current operation, the resources are not being utilized well.

Solution 3C

• 12 full-time surgeons, each being able to operate on 4 patients per day

• 12 x 4 = 48 operations per day• Project capacity: 45 operations per day• Ideal capacity: 48 capacity per day• The hospital can still perform this many

operations.

Questions 4

Although financial data are sketchy, an estimate from a construction company indicates that adding capacity would cost about HK$ 1,000,000 per bed. In addition, the rate charged for the hernia

surgery varies between about HK$9,000 and HK$20,000, with an average rate of HK$13,000 per operation. The surgeons are paid a flat rate of HK$ 6,000 per operation. Due to all the uncertainties in

government, health care legislation, King Edward would like to justify any expansion within a 5-year time period.

Assuming that the total expansion cost is paid/distributed evenly over a 5-year time period with 0% interest rate, and

disregarding the time value of the revenue…

Yearly Additional Income After Surgeon Costs and Expansion Costs

• HK$ 25,200,000 – (HK$ 45,000,000/5) = HK$ 25,200,000 – HK$ 9,000,000

• = HK$ 16,200,000• If the expansion decision is based on the

added yearly income, it could be justified based on the computations that this is a very good investment.