Analysis of operations at secondary care public and private hospital

Abstract

Hospitals are the most complex of building types. Each hospital is comprised of a wide range of services and functional units. These include diagnostic and treatment functions, such as clinical laboratories, imaging, emergency rooms, and surgery; hospitality functions, such as food service and housekeeping; and the fundamental inpatient care or bed-related function. This diversity is reflected in the breadth and specificity of regulations, codes, and oversight that govern hospital construction and operations. Each of the wide-ranging and constantly evolving functions of a hospital, including highly complicated mechanical, electrical, and telecommunications systems, requires specialized knowledge and expertise. No one person can reasonably have complete knowledge, which is why specialized consultants play an important role in hospital planning and design. The functional units within the hospital can have competing needs and priorities. Idealized scenarios and strongly-held individual preferences must be balanced against mandatory requirements, actual functional needs (internal traffic and relationship to other departments), and the financial status of the organization. The World Health Organization estimates that the republic of India needs an additional 80,000hospital beds each year for the next five years to meet the demands of India s population. Based on conservative estimates this indicates a fixed investment in infrastructure to the tune of Rs.250 billion each year to skim the surface of this target. Given that the government resources are fickle and fleeting and that they are generally visualized as initiator for public health programmes, the need to attract private capital has become paramount. Corporate healthcare groups such as Apollo Hospitals Group, Wockhardt and Fortis Health care, are the thought leaders in creating a new way of designing a corporate organization structure for hospitals and forming a conglomerate of multi-specialty private hospitals across the country. But the foreign direct investments in the private sector and the stash of money required, precariously hangs by the financial risks and returns that the sector offers to those investors. Healthcare being a highly disjointed industry depends significantly on manpower, capital and technology. In this sector, governing costs and revenue generation is a daunting task. This proves to be even more critical in India where the sector is still in its nascent stage and has only recently started attracting private investments. The recent policy changes of the government of India understand and circumvent some of these challenges and take steps in order to facilitate growth in this sector. However, the real fruit of these policies depends on the financial incentives this sector brings back to its investor on capital while circumventing the operating and financial risks, to which this capital is highly exposed to. India is quickly becoming a hub for medical tourists seeking quality healthcare at an affordable cost. Nearly 4,50,000 foreigners sought medical treatment in India last year with Singapore not too far behind and Thailand in the lead with over a million medical tourists. As the Indian healthcare delivery system strives to match international standards the Indian health care industry will be able to tap into a substantial portion of the medical tourism market. But, even after these encouraging initial signs, only Apollo Hospitals and Fortis Healthcare have registered their presence in international market as providers of health tourism. The moot point of managed health care is to provide the care that is imperative while at the same time making sure that it avoids the care that is not completely necessary. A well-managed healthcare system by the Government can prove to be more efficient than the free market system. But it can also be a disaster if managed poorly. In an ideal world this should be done by the physician. However, most physicians have a financial incentive to provide more care even if it is not completely necessary. As long as the patient is not adversely affected by the treatment and gets some benefit (even though through a cost-inefficient medicinal practice) the physician can argue that it is a win-win for both sides. Moreover, the presence of different medical insurance companies, which need tie-ups with strong healthcare brands to sell their products, are inadvertently pushing the common consumer to a market of oligopoly. The medical insurance schemes offer special discounts at these chain of hospitals and thus are serving the purpose of a gasket to restrict the new entrants to the sector of Healthcare. Moreover, the sector of Health Tourism, which as per some estimates is a 2 Billion USD market in India by 2012,thrives on globally recognised names in the healthcare sector. So, the new entrants in the field of healthcare will never find it easy to get a slice of this big pie. This proves to be even more critical in India where the sector is still in its nascent stage and has only recently started attracting private investments. The recent policy changes of the government of India understand and circumvent some of these challenges and take steps in order to facilitate growth in this sector. However, the real fruit of these policies depends on the financial incentives this sector brings back to its investor on capital while circumventing the operating and financial risks, to which this capital is highly exposed to. The government provides a broad array of public services, including healthcare, education and community services. Policy makers are interested in knowing the efficiency (that is, the ratio of the outputs produced to the inputs used) of their relevant service, be it a hospital, a bank or any production unit. It constitutes the rational framework for the distribution of human and other resources between and within health care facilities. Typical examples of efficiency are technical efficiency, referring to the effective use of resources in producing outputs, and cost efficiency, referring to the minimum level of economic resources required to produce a desired level of output. The entities can enhance their effectiveness and efficiency by comparing (or benchmarking) it to that of other units in the same situation to learn and duplicate the best performing practices. Benchmarking is the process of evaluating and emulating the products, services and processes of best-performing organisations. Benchmarking has received much attention in management, as well as production and design literature. Companies have embraced the benchmarking approach for improving specific business processes that ultimately translate to higher profitability and market share. Fortune 500 companies such as Xerox Corporation, AT and T, Chevron, American Express and 3M have committed to benchmarking and have successfully used the technique to excel in their respective industries on a global scale. Despite its popularity among marketing practitioners in these organisations and marketing academics mentioning the benchmarking concept, we found very few academic studies specifically dealing with benchmarking in the government set-up, particularly government hospitals. As management of resources plays an increasingly pervasive role in firms strategic decisions, benchmarking may be an important process for hospitals in imitating and learning from leading hospitals management practices. While it is commonly accepted that in competitive environments only the best performers will survive in the long run, there is a dearth of research on the benchmarking of efficiency in the health sector. In this study we used data envelopment analysis (DEA) to measure technical efficiency and use the benchmarking process for a particular category of health care facilities of the state of Karnataka the district headquarter hospitals. This research attempts to extend and enrich our knowledge of benchmarking and its applicability in hospital management research and practice. The article is organized in the following way. First, we introduce benchmarking process based on previous work in operations management research. Then we propose DEA as an appropriate methodology for benchmarking hospital performance and discuss the sources of data and the variables used for the analysis. Following this, we analyze the results obtained along with the descriptive statistics of the variables. Finally, we discuss our findings and its implications for policy makers and researchers.