Contributions to Practice

There are several significant takeaways for hospital administrators and executives based on our study, many of which are nuanced and not necessarily obvious at first blush. In the face of increasing competition, choices made for the process improvement factors not only affect both long-term and short-term cost structures, but also impact the hospital’s responsiveness and ability to provide a high standard of care to its patients. For instance, by having a focused service strategy, hospitals will have less heterogeneity in the patients that they treat, and hence their tasks will be more standardized. This would allow more latitude for designing standard work flows and deliver better care with a higher level of efficiency. With respect to slack resources, clinical and non-clinical staff in hospitals that have more slack will be less busy, and hence will have more time to get trained in following established procedures and protocols for clinical treatment of different kind of patients. This better training will enable better adherence to the standard operating procedures, and hence will improve process of care score. Finally, hospitals that employ a higher proportion of registered nurses in their nursing skill mix will have better flexibility in using these nurses as and when required. Hospitals in the U.S. have a perennial nurse shortage (Goodin 2003), and hospitals usually spend much more to hire agency nurses when they experience nurse shortages (Kline 2003). Even though higher skill mix is more expensive, hospitals that create more flexibility by investing in a higher proportion of

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registered nurses would be less likely to incur extra expenditures in their operating cost structure. Given the high cost associated with agency nurses, it may even lead to savings in the long run. These hospitals will have the added advantage of a higher proportion of better-trained registered nurses operating at the top of their license, which in turn will lead to higher process of care scores.

Due to declining reimbursements and financial constraints, hospital executives may be tempted to resort to lower slack and skill mix, erroneously thinking that quality can be improved by emphasizing efficiency in these areas. However, improvements in patient quality and care cannot happen when slack is low, because such hospitals will lack the ability to rethink current processes, or to devote the time needed to making them better and safer for patients (Demarco 2001), or to devote time for better training that will lead to better adherence and higher process of care scores. Recent research has highlighted the importance of better bed management, and has suggested optimizing hospital wing formation (i.e. partitioning of beds and care types) as a potential way to pool demand and bed capacity (Best et al., 2015). Slack is needed for developing appropriate measures to determine bed needs and delays in getting patients to these beds, doing adequate capacity planning by clinical unit after taking seasonality factors into account, and developing appropriate scheduling of elective surgeries to smooth out peaks and valleys in occupancy rates (Green and Nguyen, 2001; Litvak and Bisognano, 2011). Only then can hospitals avoid treatment delays and optimize utilization without compromising process of care. Better bed management decisions will enhance timely service, improve patient satisfaction, and decrease the costs per patient (Donabedian, 1988).

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Hospitals also face cost pressures in maintaining a higher cost labor related to a high skill mix. However, a higher skill mix is more productive and efficient and more likely to detect and treat abnormal conditions on time, thereby reducing the number of patient complications and preventing adverse events (Cho et al. 2003). Thus even though a high skill mix may increase hospital payroll expenditures, it actually reduces the cost of patient care and ultimately contributes to hospital profitability (McCue et al., 2003). At the same time, caution is urged. A McKinsey study recently estimated that more than a third of routine patient related activities such as transporting patients, obtaining medications from pharmacy, scheduling diagnostic tests, etc. can be safely performed by non-RN healthcare providers (Mckinsey, 2014). Hospitals thus need to carefully map work processes of both registered and other nurses to arrive at the optimal skill mix that fits their needs. Following this approach would ensure that the hospitals have higher flexibility, which would also allow the higher skilled RNs to spending more of their time on improving quality of processes and applying their enhanced skill sets.

It must be noted in this context that slack and skill mix go hand in hand. Low slack has been associated with nurse burnout and job dissatisfaction, threats to patient safety, and high nurse turnover (Vahey et al. 2004). In an environment where nurse shortages are reported and registered nurses are critical to providing patient care; creating a better work environment is critical in retaining this highly skilled labor to ensure continuity of quality improvement efforts, especially for hospitals in more competitive markets where nurses have greater inter-employer mobility. Dissatisfaction with the work environment is often cited for nurse turnover, which costs hospitals between $10,000 to $60,000 per nurse (Hayes et al., 2006).

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Finally, even though our study has recommended a focused service strategy to improving process of care scores under higher competitive conditions, many hospitals may find it difficult to become a highly focused factory like Shouldice hospital (Heskett 2003). However, it may be possible for most hospitals to develop certain specialty areas as ‘centers of excellence’ to create differentiation, especially in markets that may have several high-quality competitors. This strategy has several benefits – it helps develop standardized and evidence-based protocols that enable hospitals to follow standard work procedures due to less patient heterogeneity, provides greater engagement on the part of physicians and nurses in the delivery of care, helps attract highly skilled physicians, and sets industry standards and a reputation for innovation by establishing best practices (Rodak, 2013). This strategy can be reputation enhancing, as it can help hospitals claim higher level of patient care outcomes as well as market leadership in specific specialty areas, while maintaining a full-service line (Devers et al., 2003).