Shouldice Hospital – Case Analysis

BACKGROUND

Dr. Shouldice established a speciality hospital in 1945 near downtown Toronto, Ontario, for the treatment of hernia with a special focus on primary hernia. Starting as a small six room nursing home in 1945 the hospital grew over the years to become an 89 bed facility by 1982. Dr. Shouldice’s seminal contribution was to develop a surgical technique for the treatment of hernia which proved to be far superior to the existing practice and had crystallized from his observations over the years that quick and early ambulation following the operation expedited the trouble free recovery process.

This surgical technique, popularly known as the ‘Shouldice technique’ was based upon incorporating operative and post operative processes such as the “use of local anaesthetics, the nature of surgical process itself, the design of a facility to encourage movement without unnecessarily causing discomfort and the post operative regimen designed and communicated by the medical team”, which facilitated early ambulation. The entire process significantly reduced the stay in the hospital for the patients and facilitated their early return to their jobs. It was also the cheapest option available to the patients. Besides, the entire experience of staying in the hospital itself was a pleasant experience for the patients. This constituted a major “value proposition” for the patients who themselves provided “word of mouth” publicity of the benefits and experience undergone by them at the hospital and contributed greatly towards the success of the Shouldice Hospital.

SITUATION ANALYSIS

Facts of the case reveal that the Shouldice hospital had acquired a huge reputation of a hospital which offered reliable and quality medical facility for the treatment of hernia at a very cheap cost. This had also led to the expansion of the hospital from a modest beginning into a modern facility which carried out 6850 operations in 1982. We carried out the SWOT analysis for the Shouldice Hospital which reveals the following:

_STRENGTHS_

Unique and pioneering surgical technique for Hernia operation which considerably reduced the suffering of the patients and led to much quicker recovery as compared to the existing methods. The Shouldice technique enabled the patients to resume their normal routine and jobs in a much shorter period of time ( one to four weeks) as compared to other hospitals ( two to eight weeks).

Standardisation of operating procedures which led to efficient utilisation of the medical staff and other resources. Doctors could conduct 600 operations in a year as compared to 25 to 50 operations per year in other hospitals.

Experienced doctors and nursing staff through careful recruitment philosophy wherein experience, good education, knowledge about domestic situation, personal interest and habits (consciously avoiding people with drinking and drug problems), and their willingness to adhere to the shouldice technique were evaluated to match their value systems with that of the hospital.

‘Un-hospital’ like experience for patients through measures such as carpeting the hospital that gave the place smell other than that of disinfectant. And encouraging interaction and recreational activities amongst the patients and also with the hospital staff made the stay of the patients a pleasant experience. Matching of roommates based on similar background and the scheduling of their operation at the same time are examples and care exerted to create a friendly and warm environment which is believed to lead to faster recuperation. They developed feeling of belongingness to the hospital during the stay. These patients also proved to be the main source of ‘advertising’ for the hospital through ‘word of mouth’ publicity.

Unique recuperating techniques that stressed upon ambulation led to minimizing the cost by cutting down on various post operative patient care activities such as the reduction in laundries, common dining areas, common recreational facilities etc. This had also resulted low nurse to patient ratio compared to other similar hospitals.

Offering the cheapest option for treatment of hernia in the region.

Ensuring uninterrupted workflow through measures such as flexibility in the use of administrative staff

High reliability of Hernia operation with very small recurrence rate of 0.8 % as compared to high recurrence rates of close to 10 % as in the United States.

Motivated doctors and nurses due to higher salaries and profit sharing systems in the form of bonuses compared to other hospitals in the region, greater leisure and reasonable workload leading to sense of belongingness amongst the doctors and nurses leading to low turnovers.

Encouraging group cohesiveness and clan type of coordination mechanism within the organisation leading to greater operational efficiency.

The above factors resulted in tremendous credibility for the Shouldice Hospital which positioned it in the market as a hospital which ensured cost effective, reliable, caring and responsive service to the hernia patients. The success of the Shouldice hospital is reflected through its profitability as shown below:

Financial implication is discussed below.

ADDITIONAL REVENUE STREAM PER YEAR : $3 MILLION [12(ADDITIONAL SURGERY) * 5 (NO. OF DAYS PER WEEK) * 50(NO. OF WEEKS PER YEAR) * 1000] [ASSUMING AVERAGE REVENUE PER PATIENT IS $1,000]

LESS: ESTIMATED EXPENDITURE ON ENHANCEMENT OF BED CAPACITY BY 40%: $1.8 MILLION (FOR 50% BED CAPACITY ADDITION AN ESTIMATED EXPENDITURE OF $2 MILLION HAS BEEN GIVEN IN THE CASE).

LESS: ADDITIONAL EXPENDITURE PER YEAR: $1.12 MILLION [ 40% OF HOSPITAL EXPENDITURE OF $28,00,000]

NET REVENUE GAIN IN THE FIRST YEAR : $ 0.08 MILLION.

NET REVENUE GAIN FROM THE SECOND YEAR ONWARDS : $ 1.88 MILLION.

Thus, the entire cost is recovered in the first year itself. Thus, this alternative is profitable. Moreover, this alternative also reduces backlog. Ensuring the same level of quality of service will be an issue as workload on the staff and doctors will increase.

Adding an additional operating day on Saturday is also a valid consideration. It would utilize idle plant capacity. This is discussed in the table given below.

Financial implication of this alternative is discussed below.

ADDITIONAL REVENUE STREAM PER YEAR : $ 1.5 MILLION [30 (ADDITIONAL SURGERY PER WEEK) * 50 (NO. OF WEEKS) * 1000(ASSUMING AVERAGE REVENUE PER PATIENT IS $1,000)]

ADDITIONAL EXPENDITURE PER YEAR : $ 0.56 MILLION [20% (INCREASE IN NO. OF SURGERY)]

NET PROFIT PER YEAR: $ 0.94 MILLION.

This alternative is profitable and it also reduces backlog.

Ensuring the same level of quality of service will be an issue as workload on the staff and doctors will increase and in fact some of the senior doctors and staff are opposed to it.

Opening new centre in Canada or in US can be considered. However the point to consider is whether to have it as complete hospital or clinic services centre which would act as screening centre for patient requiring surgery. This would reduce the time spent on non-operation activities by the surgeons.

In order to meet the unmet market demand the option of adopting franchisee model on revenue sharing basis could also be explored. The main hospital could help set up these franchisees by providing the standardised procedures and training the doctors and other staff. These franchisees can cater to the requirements of profitability and reduction of backlog. However, the biggest constraint in such an approach is that the same level of quality as the main hospital will be extremely difficult to replicate. Hence, this option is not a viable proposition.

Given the fact that the hospital is a profitable business entity and has a strong reputation in the market of a quality medical service provider there could be a strong inclination to maintain status quo. In view of these facts there may not be an immediate stimulus for tampering with the existing setup. However, the risk with such an approach is that the organisation will become fossilised and might end up losing the position in the market in the long run.

RECOMMENDATION

Based on the analysis of the alternatives we would recommend adoption of the first alternative i.e. to increase the number of beds by 40 % as this would generate the maximum revenue. However, the success of this alternative would depend upon ensuring that the quality of service is not compromised. In case quality cannot be ensured then the status quo needs to be maintained as the organisation is profitable.