1. How well is the hospital currently utilizing its beds? Shouldice Hospital is currently utilizing its beds quite well. Under the Shouldice method, they are operating with 90 beds, admitting 30 patients per day, and not accepting any new patients on Saturdays. Each patient admitted generally stays in the hospital for 3 days and is discharged on the fourth morning. By examining Exhibit 4. 7, it is apparent that the hospital’s capacity utilization is roughly 71. 43%. On Mondays and Fridays, 60 of the 90 beds are utilized (66%).
Tuesdays through Thursdays, all 90 beds are being used (100%), while 30 of the beds are being used on Saturdays and Sundays (33%). If they were using all 90 beds, 7 days a week, they would be admitting 630 patients per week. Using their current process, Shouldice is using 450 beds per week which is 71. 43% of their capacity utilization. This is an ideal rate as doctors and staff members are happy while patients are satisfied with the service. Further expansion and an increase to the rate of utilization may cause a decrease in the service quality.
– 90 beds x 7 days a week = 630 beds available in a given week – 30 patients x 3 days x 5 days per week = 450 beds being used – 450 beds utilized / 630 available beds = 71. 43% 2. Develop a similar table to show the effects of adding operations on Saturday. How would this affect the utilization of the bed capacity? Is this capacity sufficient for the additional patients? (See spreadsheet attachment for table) If Shouldice adds operations on Saturdays, they would be adding 30 more beds to Fridays, Saturdays, and Sundays respectively.
As a result, the total number of beds used over the course of a week would increase by 90; making it 540 beds. The utilization rate would become 85. 71% (540/630 = 85. 71%). Therefore, it can be concluded that the utilization of bed capacity would increase by adding one more day of operation on Saturdays. However, it would be risky for Shouldice to operate with this capacity utilization due to the various changes in demand. Without expanding the facilities and increasing the number of employees, this higher capacity is likely to be insufficient for additional patients.
3. How many operations could the hospital perform per day before running out of bed capacity? How well would the new resources be utilized relative to the current operations? Why? By increasing the number of beds by 50%, the total number of beds available would become 135 (90 x 1. 5 = 135 beds). As a result, Shouldice Hospital could perform a maximum of 45 operations per day before running out of bed capacity. With operations still being performed 5 days per week, the total bed capacity would become 675 beds (135 beds x 5 days a week = 675 beds).
In relation to the current operation of 30 patients per day, the utilization rate for bed capacity would now be 66. 67% (450 / 675 = 66. 67%). After analyzing this information and reading through the case thoroughly, it would be quite difficult for Shouldice to perform 45 operations a day. They have limitations due to their operating rooms and the number of surgeons at their facility. According to the case, they have 12 full-time surgeons and only 5 operating rooms. Each surgeon operates on 4 patients per day so at most, the 12 surgeons can perform 48 total operations on a daily basis.
Additionally, each operation takes 1 hour and since they only have 5 operating rooms, the maximum number of operations they can perform is 5 operations per hour. Operation time is from 7:30am until 4:00pm which is roughly 8 hours so the maximum number of operations they can perform each day is 40 (5 operating rooms x 8 hours = 40 operations). Therefore, it can be concluded that, at maximum, Shouldice Hospital can operate on 40 patients per day. Since they can only operate on 40 patients per day, the hospital would not be able to perform 45 operations per day under the current practices.
4. Due to all the uncertainties in government health legislation, Shouldice would like to justify an expansion within a five-year time period. In order to justify an expansion within a five-year time period, Shouldice Hospital should look no further than their current capacity. By adding on to their current facilities or perhaps building a new clinic, Shouldice would be able to take on additional patients. To make up for this cost, the hospital could start performing Saturday operations.
Although the utilization rate would increase, the hospital could still provide a high quality of service that patients have come to expect from Shouldice while also leveraging their existing strengths. Nonetheless, they could still justify an expansion under the current method of operating 5 days a week if they simply expand by 30 beds. In doing so, the hospital would be able to perform 120 operations per week. The initial investment for this expansion would be $3 million (30 beds x $100,000 per bed = $3 mil).
On average, the rate charged is $1,300 per operation whereas the surgeons are paid a flat $600 per operation. Therefore, the net gain per operation would be $700. If you take that figure and multiply it by the number of operations per day, Shouldice would be making $28,000 per day ($700 x 40 operations per day = $28,000 per day). Since they perform operations 5 days a week, the total per week would be $140,000 ($28,000 x 5 = $140,000). Then, due to fact that they take a 2 week break in December, the hospital would make $7 million per year ($140,000 x 50 weeks = $7 million).
If Shouldice did not expand by 30 beds, then the hospital would be making roughly $5,250,000 per year. So the net gain of expanding by 30 beds is $1,750,000. Over 5 years, that figure would become $8,750,000 which means a $5,750,000 profit. ($8,750,000 – $3,000,000 = $5,750,000 / $3,000,000 = 1. 91; which means a 191% return on investment). Additionally, Shouldice should look into marketing their authentic method more effectively. By increasing the public’s awareness regarding their specific procedure, they would also be exposing competitors such as The Canadian Hernia Clinic.
Although these competitors try to emulate the Shouldice method, they generally misapply it or misinform their patients about the use of it. By changing the public opinion and properly informing perspective patients, Shouldice would see an increase in the number of individuals looking to be admitted to their facility. Increasing the number of patients may result in a slightly lower level of quality service, but at the same time, with more operations comes a larger profit margin for the hospital. Therefore, the plan of expansion within a five-year time period can be justified.