The Diffusion of Operations Management Concepts into the Health Care Sector

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The Diffusion of Operations Management Concepts into the Health Care Sector
Victoria Hanna and Kannan Sethuraman
aDepartment of Management, University Of Melbourne, Parkville, Victoria, 3010, Australia bMelbourne Business School, University of Melbourne, Carlton, Victoria 3053, Australia.
Submitted for ANZAM Conference 2005
This paper presents a preliminary review of the literature on the application of operations management concepts in the health care sector. The work is part of a larger study focusing on improving operational efficiency and effectiveness in the health care value chain. The review critically examines the current state of research in this field and speculates on potential areas hospitals could exploit to improve their ability to meet the needs of their diverse stakeholders.
The health care industry today is a complex industry with ever changing relationships between patients, physicians, hospitals, insurers, employers, communities, and government. A combination of factors - including the emergence of intense, dynamic competition and consolidation, increasing expectations of demanding, sophisticated consumers, and decreasing funding and utilization - have generated an increasingly challenging environment for hospitals and the health care value chain. With the health care costs continuing to escalate more quickly than general inflation1, a theme that resonates throughout the health care field today and receives increasing attention of policy makers, academia and industry is the necessity to control costs: cost containment2. The health care sector all over the world is experiencing tremendous pressure to not only control the escalating costs but also improve the quality of care it provides to its consumers (Gaucher & Coffey, 1993, p.4)
Hospitals present an interesting improvement challenge. The clinical methods used in health care and disease cure are easily understood. Yet when combined into institutions and broadened into social systems, the management of them becomes surprisingly convoluted (Glouberman and Mintzberg 2001). From the view point of operations management (OM) academics there is a strong resonance between the need for dealing with the issue of sustainability in hospitals (even not-for-profit organizations must be able to manage their cash flow and deliver funds for reinvestment), the glut of resources required to run an inefficient system and the ability of core OM concepts to alleviate the situation.
1 The cost of providing health care in the OECD countries range from 7 to 9 percent of GDP (Folland et al. 1997) and is expected to rise due to the ageing population and costs of new technology.
2 Cost containment is defined as the attainment of optimal operating efficiency within the constraints of providing a high standard of service to patients - i.e., effectiveness. (Smith et al. 1981)

The significance of OM principles to organizations outside the manufacturing sector is a conviction shared by both OM researchers and practitioners. Levitt (1972, 1976) was an early advocate who warned that service industries, in comparison with manufacturing industries were primitive, sluggish and inefficient and strongly suggested: "The managerial rationality embodied in the practical imagination we see exercised so effectively everywhere in manufacturing can, given the effort, be applied with similarly munificent results in the service industries." This belief in the value of OM concepts and techniques has not been fully translated into activity though, at least as evidenced by the lack of publications. Pannirselvam et al. (1999) and Zamora et al. (2003) estimate that only a very small proportion of the papers in the leading operations management journals were devoted to applications in service sector. Lane (2004), however, suggests that there is a significant literature on the application of operations management principles in the health care sector. He cites the reason for this work not showing up in earlier surveys to the lack of cross-referencing between the health care management journals and operations management journals. Our initial search on the topic of OM and selected OR applications in health care sector yielded more than 56 journals publishing articles. This diversity means that while a broad range of professionals are potentially reading about these issues, there is little critical mass being created and knowledge is predominantly residing in individual silos.

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