Volume Flexible Strategies in Health Services: A Research Framework Written by: Eric P. Jack and Thomas L. Powers Paper #16 Presented by: Leslie Van Gessel.

Volume Flexible Strategies in Volume Flexible Strategies in Health Services: Health Services:

A Research FrameworkA Research Framework

Written by: Eric P. Jack Written by: Eric P. Jack

and Thomas L. Powersand Thomas L. Powers

Paper #16Paper #16

Presented by: Leslie Van GesselPresented by: Leslie Van Gessel

PurposePurpose

• ““To develop a research framework To develop a research framework that describes four volume flexible that describes four volume flexible strategies”strategies”

• Design ways for the hospital to meet Design ways for the hospital to meet their uncertainty of demand, while their uncertainty of demand, while keeping their high quality servicekeeping their high quality service

Previous WorkPrevious Work

• Gutierrez (1998) “Analyzes an elective surgical Gutierrez (1998) “Analyzes an elective surgical procedure to estimate the relationship between hospital procedure to estimate the relationship between hospital procedure, specific volume, and average hospital procedure, specific volume, and average hospital treatment costs.” Results were that cost savings were treatment costs.” Results were that cost savings were associated with the hospitals volume level and size.associated with the hospitals volume level and size.

• Birkmeyer (2002) “Provides evidence that higher-volume Birkmeyer (2002) “Provides evidence that higher-volume hospitals had lover operative mortality rates for six types hospitals had lover operative mortality rates for six types of cardiovascular procedures and eight types of major of cardiovascular procedures and eight types of major cancer resections.”cancer resections.”

Previous Work (cont.)Previous Work (cont.)

• Carey (2003) “Alerted the health care community to the Carey (2003) “Alerted the health care community to the strong relationship between hospital volume of service strong relationship between hospital volume of service and quality of care outcomes and it also suggested and quality of care outcomes and it also suggested minimum volume levels of cardiovascular procedures minimum volume levels of cardiovascular procedures that hospitals should perform in order to maintain that hospitals should perform in order to maintain quality standards.”quality standards.”

• Smith-Daniels (1988) provided “a research agenda and Smith-Daniels (1988) provided “a research agenda and suggests that responses to demand and capacity suggests that responses to demand and capacity management in health care involves decisions related to management in health care involves decisions related to the allocation of three types of resources: facilities, the allocation of three types of resources: facilities, equipment, and workforce.”equipment, and workforce.”

Previous Work (cont.)Previous Work (cont.)

• Upton (1994) stated that “volume flexibility is Upton (1994) stated that “volume flexibility is concerned primarily with an organization’s concerned primarily with an organization’s ability to efficiently manage it output level in ability to efficiently manage it output level in response to fluctuations in demand for its response to fluctuations in demand for its current products or servies.”current products or servies.”

• De Groote (1994) “suggest that any flexibility De Groote (1994) “suggest that any flexibility strategy must incorporate three important strategy must incorporate three important aspects: technology, uncertainty, and aspects: technology, uncertainty, and performance.”performance.”

Previous Work (cont.)Previous Work (cont.)

• Vissers (2001) “suggests four Vissers (2001) “suggests four underlying dimensions of demand underlying dimensions of demand uncertainty in health care to uncertainty in health care to include:include:

• Size of the populationSize of the population• Demographic changes in the populationDemographic changes in the population• Changing professional standards Changing professional standards • Technological developments”Technological developments”

MethodologyMethodology

• Interview 10 health care administrators from Interview 10 health care administrators from Carnegie I research and teaching hospital because Carnegie I research and teaching hospital because that facility has different levels that include:that facility has different levels that include:

• Level of acutenessLevel of acuteness• TransplantationTransplantation• Multi-organ diseasesMulti-organ diseases

– Level 1 trauma careLevel 1 trauma care– CardiologyCardiology– GastroenterolgyGastroenterolgy– UrologyUrology– OncologyOncology– Primary CarePrimary Care– Ambulatory servicesAmbulatory services

Four Volume Flexible StrategiesFour Volume Flexible Strategies

• Shielding Strategy: low range of flexibility with a Shielding Strategy: low range of flexibility with a high level of demand uncertaintyhigh level of demand uncertainty

• Absorbing Strategy: low range of flexibility with a Absorbing Strategy: low range of flexibility with a low level of demand uncertaintylow level of demand uncertainty

• Containing Strategy: high range of flexibility with a Containing Strategy: high range of flexibility with a low level of demand uncertaintylow level of demand uncertainty

• Mitigating Strategy: high range of flexibility with a Mitigating Strategy: high range of flexibility with a high level of demand uncertaintyhigh level of demand uncertainty

Volume Flexible Strategies Volume Flexible Strategies FrameworkFramework

3. Containing

•Workforce flexibility•Information technology•Efficiency measures

4. Mitigating

•Restructuring•Risk Pooling•Outsourcing and strategic alliances

2. Absorbing

•Time buffers•Slack capacity buffers

1. Shielding

•Pricing & rationing•Demand management model•Managed care controls

 High    

 Range ofFlexibility     

Low

 Low High

Demand Uncertainty

Volume Volume Flexible FrameworkFlexible Framework

• ““Organizations will selectively Organizations will selectively choose a volume flexible strategy choose a volume flexible strategy based on the level of internal based on the level of internal flexibility desired in response to a flexibility desired in response to a given level of demand given level of demand uncertainty.”uncertainty.”

Demand UncertaintyDemand Uncertainty

• 3 ways to remove demand uncertainty:3 ways to remove demand uncertainty:1)1) Pricing & RationingPricing & Rationing

>Differential pricing strategies>Differential pricing strategies>Product and service rationing>Product and service rationing>Creation of dual markets>Creation of dual markets>Reservation system>Reservation system>Denial of admission to non->Denial of admission to non-

emergency patientsemergency patients>Relocation/Discharge of patients>Relocation/Discharge of patients>Forfeit revenues of transfer >Forfeit revenues of transfer

patientspatients

*Interviews showed that administrators weren’t able *Interviews showed that administrators weren’t able to use price and rationing to stabilize demand.*to use price and rationing to stabilize demand.*

Demand UncertaintyDemand Uncertainty

2) 2) Demand Management ModelsDemand Management Models>States that “demand for health >States that “demand for health

care services is influenced by several factors care services is influenced by several factors including size of the population, demographic including size of the population, demographic changes in the population that drive disease changes in the population that drive disease incidences, technological advances, and changing incidences, technological advances, and changing professional standards.”professional standards.”

>Suggest to use the Shielding >Suggest to use the Shielding StrategyStrategy

*Interviewees didn’t think the demand management *Interviewees didn’t think the demand management model was very important*model was very important*

Demand UncertaintyDemand Uncertainty

3) Managed Care Control3) Managed Care Control>“To manage excess demand, >“To manage excess demand,

organizations may use demographic factors such organizations may use demographic factors such as geographic distance, HMO membership, as geographic distance, HMO membership, competitor location, and the availability of competitor location, and the availability of different service offerings in a given location.”different service offerings in a given location.”

*Interviewees say that managed care control has *Interviewees say that managed care control has the “potential to stabilize demand.”the “potential to stabilize demand.”

Absorbing UncertaintyAbsorbing UncertaintyWays to absorb uncertainty:Ways to absorb uncertainty:1)1) Time BuffersTime Buffers

>Reservations>Reservations*Interviewees didn’t think reservations worked because *Interviewees didn’t think reservations worked because

doctors don’t always go according to the schedules*doctors don’t always go according to the schedules*2)2) Slack CapacitySlack Capacity

>Capacity needs to take into consideration factors such >Capacity needs to take into consideration factors such as:as:-No-show rates-No-show rates-Early and late arrivals of patients-Early and late arrivals of patients-Confusion and crowding in waiting areas-Confusion and crowding in waiting areas-Late arrival of physicians-Late arrival of physicians-Inadequate equipment for treatment-Inadequate equipment for treatment-Emergency admissions-Emergency admissions

Containing UncertaintyContaining Uncertainty

3 approaches to containing uncertainty3 approaches to containing uncertainty1)1) Workforce FlexibilityWorkforce Flexibility

>Deployment of overtime and temporary employees>Deployment of overtime and temporary employees>Innovative shift schedules>Innovative shift schedulesCreative use of existing employees through cross-trainingCreative use of existing employees through cross-training*Interviewees commented a lot on how they are understaffed, *Interviewees commented a lot on how they are understaffed,

especially in the nursing department.*especially in the nursing department.*

2)2) Efficiency MeasuresEfficiency Measures>Focus on processes that enhance their efficiency and >Focus on processes that enhance their efficiency and

improve internal planning control systemsimprove internal planning control systems-Utilization reviews-Utilization reviews-Standard Costing-Standard Costing-Focus on improving labor productivity-Focus on improving labor productivity

*Interviewees had a negative response to efficiency *Interviewees had a negative response to efficiency measures.*measures.*

Containing UncertaintyContaining Uncertainty

3) Information Technology3) Information Technology>Ways to reduce uncertainty through >Ways to reduce uncertainty through

technology:technology:

--Deployment of new information Deployment of new information technologytechnology-Online patient records-Online patient records-Electronic billing systems-Electronic billing systems-Highspeed telecommunication -Highspeed telecommunication systemssystems

*Interviewees liked keeping up to date with the *Interviewees liked keeping up to date with the advancing technology.*advancing technology.*

Mitigating UncertaintyMitigating Uncertainty

• Organizations need to improve Organizations need to improve coordination in every area of the coordination in every area of the supply chain, especially when demand supply chain, especially when demand is increasing.is increasing.

• 3 approaches to mitigating 3 approaches to mitigating uncertainty:uncertainty:

1)1) Restructuring (both internal and external)Restructuring (both internal and external)*Interviewees found it hard for the hospital to *Interviewees found it hard for the hospital to

acquire more facilities.*acquire more facilities.*

Mitigating UncertaintyMitigating Uncertainty

2) Risk Pooling2) Risk Pooling-Putting the product and service lines -Putting the product and service lines under one roof will help demand. under one roof will help demand.

When When one is in high demand the other is in one is in high demand the other is in low low demand.demand.

*Interviewees viewed risk pooling as a “potentially *Interviewees viewed risk pooling as a “potentially effective tool.”*effective tool.”*

3) Outsourcing and Strategic Alliances3) Outsourcing and Strategic Alliances-Outsourcing will lower cost, offer -Outsourcing will lower cost, offer

broader service mix, and give providers broader service mix, and give providers the the opportunity for market share.opportunity for market share.

*Senior interviewees noted that there needs to be *Senior interviewees noted that there needs to be more emphasis on outsourcing.*more emphasis on outsourcing.*

PropositionsPropositions

• ““Volume flexible strategies may be Volume flexible strategies may be deployed tactically at the service line or deployed tactically at the service line or departmental delivery system level departmental delivery system level within the organization.”within the organization.”

• ““Size of the health care organization Size of the health care organization may be positively related to the extent may be positively related to the extent of deployment and use of the four of deployment and use of the four volume flexible strategies.”volume flexible strategies.”

Dimensions of Volume Dimensions of Volume Flexible StrategiesFlexible Strategies

1)Time1)Time– Short-term: organizations rely on time Short-term: organizations rely on time

buffers, workforce flexibility, inventory buffers, workforce flexibility, inventory buffers, efficiency measures, demand buffers, efficiency measures, demand management models, pricing & rationing, management models, pricing & rationing, and managed care controls.and managed care controls.

– Long-term: organizations rely on Long-term: organizations rely on restructuring, risk pooling, outsourcing & restructuring, risk pooling, outsourcing & strategic alliances, investments, and slack strategic alliances, investments, and slack capacity.capacity.

Dimensions of Volume Dimensions of Volume Flexible StrategiesFlexible Strategies

2) Sources2) Sources– Internal sources: organizations measure by Internal sources: organizations measure by

time buffers, workforce flexibility, inventory time buffers, workforce flexibility, inventory buffers, efficiency measures, information buffers, efficiency measures, information technology, and slack capacity.technology, and slack capacity.

– External sources: organizations measure by External sources: organizations measure by outsourcing & strategic alliances, risk outsourcing & strategic alliances, risk pooling, managed care controls, and pricing pooling, managed care controls, and pricing & rationing strategies.& rationing strategies.

ConclusionsConclusions

How to know what strategy to use:How to know what strategy to use:1) Use Shielding Strategy when the organization 1) Use Shielding Strategy when the organization

has a low range of flexibility and high level of has a low range of flexibility and high level of demand uncertainty. Which results in the use demand uncertainty. Which results in the use of pricing and rationing, demand management of pricing and rationing, demand management models, and managed care control.models, and managed care control.

2) Use Absorbing Strategy when the organization 2) Use Absorbing Strategy when the organization has a low range of flexibility with a low level of has a low range of flexibility with a low level of demand uncertainty. Which results in the use demand uncertainty. Which results in the use of time buffers and slack capacity.of time buffers and slack capacity.

Conclusions (cont.)Conclusions (cont.)

3) Use Containing Strategy when the organization 3) Use Containing Strategy when the organization has a high range of flexibility and a low level of has a high range of flexibility and a low level of demand uncertainty. Which results in the use demand uncertainty. Which results in the use of workforce flexibility, efficiency measures, of workforce flexibility, efficiency measures, and information technology.and information technology.

4) Use Mitigating Strategy when the organization 4) Use Mitigating Strategy when the organization has a high range of flexibility with a high level has a high range of flexibility with a high level of demand uncertainty. Which results in the of demand uncertainty. Which results in the use of restructuring, risk pooling, and use of restructuring, risk pooling, and outsourcing.outsourcing.

Volume Flexible Strategies by Volume Flexible Strategies by Service LinesService Lines

3. Containing

•Cardiology•Open Heart Surgery•Neurosurgery•Surgical oncology•Orthopedics

4. Mitigating

•Non-clinical support•Clinical specialty•Rehabilitation•Mental Health•Pediatrics

2. Absorbing

•Ambulatory care•Emergency care•Intensive care•Neonatology

1. Shielding

•Primary care•Elective plastic surgery•Geriatric service•Health education/Preventative service

    High 

   Range ofFlexibility

  Low 

Low HighDemand Uncertainty

Any Questions?Any Questions?