CASE: SHOULDICE
HOSPITAL—A CUT
ABOVE
Submitted by:
PUP SRC BSA 2-1
1. How well is the hospital currently utilizing its beds?
Shouldice Hospital that is widely known for hernia repair; has been
performing well over the past two decades wherein it has averaged 7,000
operations annually with 90-bedded hospital. Additionally, the provided beds in
the hospital are entirely utilized for three days which includes patients generally
staying at the hospital. Since the operations are performed in five days a week,
hence the reason for five doctors to also operate in those days.
To examine if how well Shouldice Hospital currently utilizing its beds, the
computation for utilization will be used:
Based on the computation above, 71.43% of these beds are currently being
utilized which indicates that Shouldice Hospital is on its ideal peak of operation, yet the
hospital should also consider the problems might arise in the future since 90 beds would
not suffice to match the continuous surge of demand. To satisfy the growing shift of
demand. Shouldice Hospital must consider between adding one more day of operations
(Saturday) to the existing five-day schedule, which would increase capacity by 20
percent or to add another floor of rooms to the hospital, increasing the number of beds
by 50 percent.
2. Develop a similar table to show the effects of adding operations on Saturday.
(Assume that 30 operations would still be performed each day.) How would this
affect the utilization of the bed capacity? Is this capacity sufficient for the
additional patients?
3. Now look at the effect of increasing the number of beds by 50 percent. How
many operations could the hospital perform per day before running out of bed
capacity? (Assume operations are performed five days per week, with the same
number performed each day.) How well would the new resources be utilized
relative to the current operation? Could the hospital really perform this many
operations? Why? (Hint: Look at the capacity of the 12 surgeons and the five
operating rooms.)
Beds
Required
Check-In
Day
Monday
Tuesday
Monday
45
45
45
45
45
45
45
45
45
45
45
Tuesday
Wednesday
Wednesday Thursday Friday Saturday Sunday
Thursday
45
Friday
Saturday
Sunday
45
45
Total
90
135
45
135
135
Capacity Utilization Rate of Beds
𝐶𝑎𝑝𝑎𝑐𝑖𝑡𝑦 𝑈𝑡𝑖𝑙𝑖𝑧𝑎𝑡𝑖𝑜𝑛 𝑅𝑎𝑡𝑒 =
𝐴𝑐𝑡𝑢𝑎𝑙 𝑂𝑢𝑡𝑝𝑢𝑡
𝑀𝑎𝑥𝑖𝑚𝑢𝑚 𝑝𝑜𝑠𝑠𝑖𝑏𝑙𝑒 𝑜𝑢𝑡𝑝𝑢𝑡
Monday
90
135
= 0. 66 * 100 = 66%
Tuesday
135
135
= 0. 1 * 100 = 100%
Wednesday
135
135
= 0. 1 * 100 = 100%
𝑥 100
90
45
45
Thursday
135
135
= 0. 1 * 100 = 100%
90
135
= 0. 66 * 100 = 66%
Friday
Saturday
45
135
= 0. 33 * 100 = 33%
Sunday
45
135
= 0. 33 * 100 = 33%
If the number of beds is increased by 50%, 90 beds become 135 beds available
everyday. Shouldice Hospital has the capacity to do 45 operations per day before
running out of beds. To fully utilize facilities four days a week, a 50% increase in beds
would necessitate 45 operations on Monday, Tuesday, Wednesday, and Thursday. If
normally, 30 procedures (150 operations performed per week/5 days a week performed)
are performed in 5 rooms per day, then 6 operations are performed in each room. To
execute 45 operations each day, the rooms must be occupied 9 hours per day or more
rooms must be added. Shouldice will require more operating rooms to complete this
many operations.
4. Although financial data are sketchy, an estimate from a construction company
indicates that adding bed capacity would cost about $100,000 per bed. In
addition, the rate charged for the hernia surgery varies between about $900 and
$2,000 (U.S. dollars), with an average rate of $1,300 per operation. The surgeons
are paid a flat $600 per operation. Due to all the uncertainties in government
health care legislation, Shouldice would like to justify any expansion within a
five-year time period.
Revenue: $700 per operation (after surgeon fee $1,300-$600)
50 operations per week (10 per day/5 days week) totals $2,600
$700 * $2,600 = $1,820,000 in operations/year
Cost: $100,000/bed *30 beds = $3,000,000
Revenue – Cost ($9,100,000 ($1,820,000*5yrs)-$3,000,000=$6,100,000
$6,100,000 would make a 5yr investment profitable
Expansion Costs
10
$100,000
$1,000,000
= Additional beds
=Cost per additional bed
= Total expansion cost
Revenue/ Cost per surgery
$700
= Revenue per operation
$600
= Surgeon cost per operation
$100
= Additional revenue per operation
50
=Additional operations
Financial Analysis
$5,000
200
= Incremental revenue
= Payback in weeks