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Is healthcare different from other asset-heavy industries? Managing capacity for hospital operations improvement

  • Mohan Giridharadas
    Mohan Giridharadas

    Founder & CEO, LeanTaaS

  • Sanjeev Agrawal
    Sanjeev Agrawal

    President and COO, LeanTaaS

To fulfill the potential of hospital operations improvement and optimize our capacity, we need look no further than the asset-heavy, data-driven industries that have unlocked theirs.

Every day, UPS has to predict where millions of packages are going to originate on future days and where they are going to go. Many of these will be overnight deliveries from far-flung cities and must be delivered to specific addresses before 10:30 the next morning. 

Why does UPS need to predict this information far into the future? Because that’s how the company can optimize the use of its fleet of aircraft and trucks to deliver on time and on budget, meet its promise to customers, and make a profit. This is very hard to do and yet, few of us can remember the last time UPS or Fedex failed to deliver on their promise in the midst of sun, rain, snow, or storms all over the country and the world. 

Pre-COVID, and now as we continue working through the impact of COVID, every airline must predict how many passengers will fly from any of the nearly 20,000 airports in the country to any of the others. That amounts to 400 million possible combinations, with almost no certainty of which one of 330 million Americans will get up one day and decide to go from Airport A to Airport B, possibly through Airport C, on some future date. They’ll expect an affordable cost and a huge emphasis on safety. 

Why do airlines have to anticipate this? Because that’s how they’re able to price each seat on each flight, staff each flight based on the type of aircraft, and schedule the aircraft and engine maintenance. It’s also how airlines determine how to hire and maintain their fleet of pilots, flight crews, and ground staff. It’s how they choose the airports they want to fly in and out of, and how they make thousands of similar decisions that impact their own viability and the quality of the traveler’s experience. For decades, due to these decisions, millions of people have flown safely and reasonably quickly to their destinations every day.

There are dozens of similar examples from industries outside healthcare. Uber matches volatile demand and supply at each street corner. Waze and Google Maps come extremely close to predicting how long it will take to get from point X to point Y on any date or time into the future, and in real-time rerouting through point Z. Marriott and other hotel chains plan and price every bed, every single night. 

What do these businesses have in common with healthcare?  Healthcare, like logistics, air travel, navigation, and hospitality, is asset-intensive, and has deployed a lot of capital and hired a lot of people that results in a high fixed costs of operation. On the margin, however, “increasing access at lower cost” (e.g. filling another airplane seat, delivering another package, reserving another hotel room, matching another passenger and driver) is pure profit to the company involved while making customers happier.

In the healthcare world, however, the OR that is empty for 3 continuous hours during business hours; the infusion chair that’s unoccupied when we have the staffing and drugs on hand to do a treatment; the clinic examination room that remains empty; are all examples of underutilized, perishable assets. If these go unused, their capacity is lost forever. A full waiting room, or the patient in the OR waiting for a bed to open in the PACU or ICU are examples of common experiences in healthcare that would be considered distinctly terrible customer experiences in other industries. Healthcare simply hasn’t yet caught up yet with those other industries. But it needs to, fast, or substantial hospital operations improvement will be impossible. 

Why have airlines, transportation companies, hotels and others done a better job of asset utilization, maximizing access, and lowering unit costs? Because of the invisible hand of market forces. Historically, healthcare has been shielded from the market pressures these other industries have faced (e.g. airline customers have choices, hotel chains have to provide price transparency, the main payer is always the user for the most part) and so they have not been forced to use sophisticated tools that take existing data and make apolitical, logical, and rational decisions for the future in the best interest of the customer. 

As market forces visibly disrupt healthcare (no more access to cheap capital, reimbursement pressures, rising demand in the face of constrained supply), efficiency is no longer a luxury that’s nice to have. Like with the banks, retailers, transportation, lodging, and entertainment sectors, it is now time for healthcare to pursue efficiency as vigorously as possible. Capacity management committees armed with dashboards that “admire the problem” will no longer be enough. Kicking the problem down the road “because we don’t believe the data” won’t be acceptable. Health systems that use the predictive and prescriptive tools required to move to a new way of managing capacity will have an edge as we are already starting to see.

For more on capacity management in healthcare, and its relation to hospital operations improvement, download our white paper here

A version of this piece originally ran in Becker’s Hospital Review.

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