[July 25, 2018]

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

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 Internatioal 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 (News - Alert) 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.

View source version on businesswire.com: https://www.businesswire.com/news/home/20180725005751/en/

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