Case Analysis Assignment Discussion

Daniel B. McLaughlin John R. Olson

Healthcare Operations Management T h i r d E d i T i o n

AUPHA/HAP Editorial Board for Graduate Studies

Nir Menachemi, PhD, Chairman Indiana University

LTC Lee W. Bewley, PhD, FACHE University of Louisville

Jan Clement, PhD Virginia Commonwealth University

Michael Counte, PhD St. Louis University

Joseph F. Crosby Jr., PhD Armstrong Atlantic State University

Mark L. Diana, PhD Tulane University

Peter D. Jacobson, JD University of Michigan

Brian J. Nickerson, PhD Icahn School of Medicine at Mount Sinai

Mark A. Norrell, FACHE Indiana University

Maia Platt, PhD University of Detroit Mercy

Debra Scammon, PhD University of Utah

Tina Smith University of Toronto

Carla Stebbins, PhD Des Moines University

Cynda M. Tipple, FACHE Marymount University

Health Administration Press, Chicago, Illinois

Association of University Programs in Health Administration, Washington, DC

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The statements and opinions contained in this book are strictly those of the authors and do not represent the official positions of the American College of Healthcare Executives, the Foundation of the American College of Healthcare Executives, or the Association of University Programs in Health Administration.

Copyright © 2017 by the Foundation of the American College of Healthcare Executives. Printed in the United States of America. All rights reserved. This book or parts thereof may not be reproduced in any form without written permission of the publisher.

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Library of Congress Cataloging-in-Publication Data Names: McLaughlin, Daniel B., 1945– author. | Olson, John R. (Professor), author. Title: Healthcare operations management / Daniel B. McLaughlin and John R. Olson. Description: Third edition. | Chicago, Illinois : Health Administration Press; Washington, DC : Association of University Programs in Health Administration, [2017] | Includes bibliographical references and index. Identifiers: LCCN 2016046001 (print) | LCCN 2016046925 (ebook) | ISBN 9781567938517 (alk. paper) | ISBN 9781567938524 (ebook) | ISBN 9781567938531 (xml) | ISBN 9781567938548 (epub) | ISBN 9781567938555 (mobi) Subjects: LCSH: Medical care—Quality control. | Health services administration—Quality control. | Organizational effectiveness. | Total quality management. Classification: LCC RA399.A1 M374 2017 (print) | LCC RA399.A1 (ebook) | DDC 362.1068— dc23 LC record available at https://lccn.loc.gov/2016046001

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To my wife, Sharon, and daughters, Kelly and Katie, for their love and support throughout my career.

—Dan McLaughlin

To my father, Adolph Olson, who passed away in 2011. Your strength as you battled cancer inspired me to change and educate others about our healthcare system.

—John Olson

The first edition of this book was coauthored by Julie Hays. During the final stages of the completion of the book, Julie unexpectedly died. As Dr. Christopher Puto, dean of the Opus College of Business at the University of St. Thomas, said, “Julie cared deeply about students and their learning experience, and she was an accomplished scholar who was well respected by her peers.” This book is a final tribute to Julie’s accomplished career and is dedicated to her legacy. Case Analysis Assignment Discussion

—Dan McLaughlin and John Olson

vii

BRIEF CONTENTS

Preface …………………………………………………………………………………………xv

Part I Introduction to Healthcare Operations

Chapter 1. The Challenge and the Opportunity …………………………….3

Chapter 2. History of Performance Improvement ………………………..17

Chapter 3. Evidence-Based Medicine and Value-Based Purchasing ….45

Part II Setting Goals and Executing Strategy

Chapter 4. Strategy and the Balanced Scorecard …………………………..71

Chapter 5. Project Management ……………………………………………….97

Part III Performance Improvement Tools, Techniques, and Programs

Chapter 6. Tools for Problem Solving and Decision Making ………..135

Chapter 7. Statistical Thinking and Statistical Problem Solving ……..167

Chapter 8. Healthcare Analytics ……………………………………………..203

Chapter 9. Quality Management: Focus on Six Sigma …………………221

Chapter 10. The Lean Enterprise ………………………………………………255

Part IV Applications to Contemporary Healthcare Operations Issues

Chapter 11. Process Improvement and Patient Flow …………………….281

Chapter 12. Scheduling and Capacity Management ………………………323

Chapter 13. Supply Chain Management ……………………………………..345

Chapter 14. Improving Financial Performance with Operations Management ………………………………………………………..369

viii Brief Contents

Part V Putting It All Together for Operational Excellence

Chapter 15. Holding the Gains …………………………………………………391

Glossary …………………………………………………………………………………….411 Index ………………………………………………………………………………………..419 About the Authors ………………………………………………………………………..437

ix

DETAILED CONTENTS

Preface …………………………………………………………………………………………xv

Part I Introduction to Healthcare Operations

Chapter 1. The Challenge and the Opportunity …………………………….3 Overview ………………………………………………………………..3 The Purpose of This Book ………………………………………….3 The Challenge ………………………………………………………….4 The Opportunity ……………………………………………………..6 A Systems Look at Healthcare …………………………………….8 An Integrating Framework for Operations Management

in Healthcare ……………………………………………………..12 Conclusion …………………………………………………………….15 Discussion Questions ………………………………………………15 References ……………………………………………………………..15

Chapter 2. History of Performance Improvement ………………………..17 Operations Management in Action …………………………….17 Overview ………………………………………………………………17 Background……………………………………………………………18 Knowledge-Based Management …………………………………20 History of Scientific Management ………………………………22 Project Management ……………………………………………….26 Introduction to Quality ……………………………………………27 Philosophies of Performance Improvement ………………….34 Supply Chain Management ……………………………………….38 Big Data and Analytics …………………………………………….40 Conclusion …………………………………………………………….41 Discussion Questions ………………………………………………41 References ……………………………………………………………..42

Chapter 3. Evidence-Based Medicine and Value-Based Purchasing ….45 Operations Management in Action …………………………….45

x Detai led Contents

Overview ………………………………………………………………45 Evidence-Based Medicine …………………………………………46 Tools to Expand the Use of Evidence-Based Medicine …..54 Clinical Decision Support …………………………………………59 The Future of Evidence-Based Medicine and Value

Purchasing …………………………………………………………62 Vincent Valley Hospital and Health System and Pay for

Performance ………………………………………………………63 Conclusion …………………………………………………………….64 Discussion Questions ………………………………………………64 Note …………………………………………………………………….64 References ……………………………………………………………..65

Part II Setting Goals and Executing Strategy

Chapter 4. Strategy and the Balanced Scorecard …………………………..71 Operations Management in Action …………………………….71 Overview ………………………………………………………………71 Moving Strategy to Execution …………………………………..72 The Balanced Scorecard in Healthcare ……………………….75 The Balanced Scorecard as Part of a Strategic

Management System ……………………………………………76 Elements of the Balanced Scorecard System …………………76 Conclusion …………………………………………………………….93 Discussion Questions ………………………………………………93 Exercises ……………………………………………………………….94 References ……………………………………………………………..94 Further Reading ……………………………………………………..95

Chapter 5. Project Management ……………………………………………….97 Operations Management in Action ……………………………97 Overview ………………………………………………………………97 Definition of a Project ……………………………………………..99 Project Selection and Chartering ……………………………..100 Project Scope and Work Breakdown …………………………107 Scheduling …………………………………………………………..113 Project Control …………………………………………………….117 Quality Management, Procurement, the Project

Management Office, and Project Closure ………………120 Agile Project Management ……………………………………..124 Innovation Centers ………………………………………………..125

xiDetai led Contents

The Project Manager and Project Team …………………….126 Conclusion …………………………………………………………..129 Discussion Questions …………………………………………….129 Exercises ……………………………………………………………..129 References ……………………………………………………………130 Further Reading ……………………………………………………130

Part III Performance Improvement Tools, Techniques, and Programs

Chapter 6. Tools for Problem Solving and Decision Making ………..135 Operations Management in Action …………………………..135 Overview …………………………………………………………….135 Decision-Making Framework …………………………………..136 Mapping Techniques ……………………………………………..138 Problem Identification Tools …………………………………..143 Analytical Tools …………………………………………………….153 Implementation: Force Field Analysis ……………………….162 Conclusion …………………………………………………………..163 Discussion Questions …………………………………………….163 Exercises ……………………………………………………………..164 References ……………………………………………………………165

Chapter 7. Statistical Thinking and Statistical Problem Solving ……..167 Operations Management in Action …………………………..167 Overview: Statistical Thinking in Healthcare ………………167 Foundations of Data Analysis …………………………………..169 Graphic Tools ……………………………………………………….169 Mathematical Descriptions ……………………………………..174 Probability …………………………………………………………..178 Confidence Intervals and Hypothesis Testing ……………..185 Simple Linear Regression………………………………………..192 Conclusion …………………………………………………………..198 Discussion Questions …………………………………………….199 Exercises ……………………………………………………………..199 References ……………………………………………………………201

Chapter 8. Healthcare Analytics ………………………………………………203 Operations Management in Action …………………………..203 Overview …………………………………………………………….203 What Is Analytics in Healthcare? ………………………………203 Introduction to Data Analytics ………………………………..205

xii Detai led Contents

Data Visualization …………………………………………………209 Data Mining for Discovery ……………………………………..214 Conclusion …………………………………………………………..217 Discussion Questions …………………………………………….218 Note …………………………………………………………………..218 References …………………………………………………………..219

Chapter 9. Quality Management—Focus on Six Sigma ……………….221 Operations Management in Action …………………………..221 Overview …………………………………………………………….221 Defining Quality …………………………………………………..222 Cost of Quality ……………………………………………………..223 The Six Sigma Quality Program ……………………………….225 Additional Quality Tools ………………………………………..240 Riverview Clinic Six Sigma Generic Drug Project ……….245 Conclusion …………………………………………………………..250 Discussion Questions …………………………………………….250 Exercises ……………………………………………………………..250 References ……………………………………………………………253

Chapter 10. The Lean Enterprise ………………………………………………255 Operations Management in Action …………………………..255 Overview …………………………………………………………….255 What Is Lean? ………………………………………………………256 Types of Waste ……………………………………………………..257 Kaizen …………………………………………………………………259 Value Stream Mapping …………………………………………..259 Additional Measures and Tools ………………………………..261 The Merging of Lean and Six Sigma Programs …………..274 Conclusion …………………………………………………………..276 Discussion Questions …………………………………………….276 Exercises ……………………………………………………………..277 References ……………………………………………………………277

Part IV Applications to Contemporary Healthcare Operations Issues

Chapter 11. Process Improvement and Patient Flow …………………….281 Operations Management in Action …………………………..281 Overview …………………………………………………………….281 Problem Types ……………………………………………………..282 Patient Flow …………………………………………………………283