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Diwas KC

For Southwest Airlines and Motel 6, one of the keys to success has been focusing operations on budget-conscious travelers. Focus also has played an important role at Federal Express, which has built a lucrative business by serving customers who need guaranteed overnight delivery. And there’s reason to think that focus – the idea that organizations become more effective through repetition and concentration – works in health care, too. Even so, few studies have uncovered the “black box” of the firm to estimate the underlying drivers of the supposed efficiency, write Diwas KC of Emory University’s Goizueta Business School and Christian Terwiesch, a colleague from the Wharton School. Could it be that focused factories realize superior performance because they have successfully cherry-picked an attractive product line? The researchers show through a study of heart care provided at hospitals in California that cherry-picking seems to be responsible for a good deal of the advantages enjoyed by focused hospitals.

The Effects of Focus on Performance: Evidence from California Hospitals (Management Science)

The researchers began their study by collecting data for 500,437 patients treated in a variety of California hospitals in 2007. Heart care is one of the most important service lines in many hospitals, so the researchers analyzed cardiac admissions at the firm, operating unit and process flow levels. Medical centers with a greater share of heart patients relative to all admissions were deemed more focused at the firm level than those with a lesser share of cardiac admissions. At the operating unit level, researchers defined focus in terms of the share of patients within the cardiology department who underwent procedures for coronary revascularization, in which doctors use different surgical and minimally-invasive techniques to treat blockages. At the most granular level, researchers defined focus in terms of the share of heart patients who received a particular type of revascularization procedure called coronary artery bypass grafting – a major surgery that’s commonly abbreviated as CABG and pronounced “cabbage.” Researchers found that at the firm level, more focused hospitals were able to discharge cardiology patients more quickly while running lower mortality rates. The benefits of focus extended to the operating unit and process levels, too. But many of these advantages disappeared, the study found, after adjusting for the pre-operative risk levels of patients at focused and non-focused hospitals. Patients at focused hospitals had significantly lower risk scores prior to treatment, which is consistent with the theory that focused hospitals cherry-pick patients, the researchers wrote. After adjusting for the risk level of patients, firm-level focus did not correspond to improved length-of-stay or mortality. At the level of the cardiology department, operating unit focus delivered shorter lengths-of-stay and similar levels of mortality risk. However, at the process level, cherry-picking did not seem to be a factor, as CABG patients across hospitals had similar risk and resource needs.

Only one hospital in the study had a percentage of cardiac patients that exceeded 60 percent, the researchers noted, so it’s possible that the effects of focus might vary at higher degrees. They pointed out that some define specialty hospitals as medical centers where more than two-thirds of all patients fall under one major diagnostic category. Aside from that potential limitation, the researchers say the study has several managerial and policy implications. For starters, the results suggest that to achieve true operational improvement, hospitals should focus at the department unit level as opposed to across the entire hospital. More broadly, the study suggests that the benefits of focused hospitals at a societal level are much smaller than previously believed. A division of labor between hospitals that focus on easy-to-treat patients and those that care for riskier cases might be in the best interest of social welfare, the researchers write. But hospital reimbursements would need to be adjusted accordingly. General service hospitals that deal with riskier patients might be entitled to higher payment rates, the researchers write, because they treat those needing more costly services.

“From hotels to hospitals and from financial services to airlines, operational focus has often been a source of competitive advantage,” the researchers conclude. “Future research needs to replicate our theoretical framework with this distinction between operational gains from focus and the selection gains associated with cherry-picking. Furthermore, as we have found, the operational gains from focus also depend significantly on the level of the organization at which focus is evaluated.”

Diwas Singh KC is an Assistant Professor of Information Systems and Operations Management at the Goizueta Business School at Emory University. His research focuses on productivity, quality and capacity management in healthcare delivery, and draws on methods from operations management and econometrics to generate insights for improving operational performance. He has recently collaborated with several organizations including the University of Pennsylvania Hospital System and Emory Healthcare in areas of patient flow, adoption of innovation, capacity planning and quality improvement. Professor KC teaches MBA electives in Healthcare Operations and Technology Management, and Management Science in Spreadsheets. Prior to joining Goizueta, Professor KC received his Ph.D. from the Wharton School of Business, University of Pennsylvania, MS in Management Science and Engineering from Stanford University and ScB in Electrical Engineering from Brown University.

– Chris Snowbeck