Market Overview

Process Excellence Significantly Impacts Competitive Advantage for Hospitals, Florida International University Study Reveals

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As hospitals face increasing pressure to balance strategic priorities
and improve the effectiveness and efficiency of care delivery, research
from Florida International University's College of Business (FIU
Business) finds that a focus on process excellence can improve a
hospital's competitive position.

The research looked at what happens when hospitals make improvements in
three areas: cost per discharge, average length of stay, and conformance
quality, defined as compliance with healthcare standards. It reveals
that hospitals that lower costs per discharge and average length of stay
achieve greater inpatient market share, while those that make
improvements in conformance quality lose market share.

"A long-term perspective on process excellence should not be viewed as a
cost mitigation mechanism, but rather strategically, as a critical
source of competitive advantage," said Antoinette Smith, associate
professor of accounting at FIU Business.

Published in the August 2018 issue of the International Journal of
Production Economics, the research analyzed 288 short-term acute care
hospitals in California from 2004 through 2011, examining actual changes
in the three key components of process excellence.

The paper was co-authored by Smith with University of Tennessee
associate professor of business analytics, Bogdan C. Bichescu, and
assistant professor of supply chain management, Randy V. Bradley, plus
Wei Wu from AGL Resources.

The research also found:

  • Improvements in conformance quality reduce cost per discharge - a 10
    percent increase in conformance quality results in a $210 decrease in
    cost per discharge.
  • Hospitals that reduce cost per discharge see greater profitability - a
    10 percent decrease ($2,950) in cost per discharge results in
    approximately a 1 percent gain in profitability.
  • Reductions in cost per discharge in other areas of a hospital, can
    help mitigate the negative effects of conformance quality on
    profitability and market share.

"The finding that improving hospitals' conformance quality tends to be
associated with lower market share is alarming," said Smith. "Improving
this measure hinders a hospital's ability to improve its financial
position and to achieve its service-oriented mission of caring for more
patients in the surrounding communities."

The researchers suggest hospital administrators should supplement
initiatives to improve quality with strategies to drive down cost per
discharge. This will help mitigate the decreases in market share and
profitability resulting from an intense focus on conformance quality.

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