Table Of ContentAUPHA/HAP Editorial Board for Graduate Studies
Nir Menachemi, PhD, Chairman
Indiana University
Daniel B. McLaughlin
LTC Lee W. Bewley, PhD, FACHE
SACS
University of Louisville
Jan Clement, PhD
Virginia Commonwealth University
Healthcare
Michael Counte, PhD
St. Louis University
Joseph F. Crosby Jr, PhD
NTT ENTS
Armstrong Atlantic State University
Mark L. Diana, PhD
Tulane University
PUREST
Peter D. Jacobson, JD
Univeorf sMiichtigyan
Brian J. Nickerson, PhD
Icahn School of Medicine at Mount Sinai
THIRD EDITION
Mark A. Norrell, FACHE
Indiana University
Maia Platt, PhD
University of Detroit Mercy
Debra Scammon, PhD
Univerosfi tUtyah
Tina Smith
Universitoyf Toronto
Carla Stebbins, PhD
Des Moines University
Cynda M. Tipple, FACHE
Marymount University
Daniel 8. McLaughlin
John R. Olson
Healthcare
fee
Denes
THIRD EDITION
AUPHA
Health Administration Press, Chicago, Illinois
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Library of Congress Cataloging-in-Publication Data
Names: McLaughlin, DanBi., e19l45 - aut| hOlosonr, .Joh n R. (Professor), author.
Title: Healthcare operations management / Daniel 8. McLaughlin and John R.
Olson.
Description: Third edition. | Chicago, Illinois : Health Administration Press; Wash-
ington, DC : Associofa Utniiveorsnit y 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 —de23
LC record available at htt) cn loc.g
The paper used in this publication meets the minimum requirements of American
National Standard for Information Sciences—Permanence of Paper for Printed
To my wife, Sharon, and daughters, Kelly and Katie, for their love and support through-
out 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 ca
reer and is dedicated to her legacy.
—Dan McLaughlin and John Olson
BRIEF CONTENTS
Part lIntroduction to Healthcare Operations
Chapter 1.The Challenge and the Opportunity
hapter 2.Hiosf tPeroforrmaync e Improvement
D
1
| apt er 3.Evidence-Based Medicaindn Veal ue-Based Purchasing
#
Part l1Setting Goals and Executing Strategy
Chapter 4.Strategy and the Balanced Scorecard
Chapter 5,Project Management
Part Il1Performance Improvement Tools, Techniquesan,d Programs
Chapter 6.Tools for Problem Solvin; and Decision Making
Chapter 7.Statistical Thinking and Statistical Pr oblem Solving
Chapter 8.Healthcare Analytics
Chapter 9.Quality Management: Focoun sSi x Sigma
Chapter 10.The Lean Enterprise
Part IVApplications to Contemporary Healthcare Operations Issues
Chapter 11.Process Improvement and Patient Flow
Chapter 12.Scheduling and Capacity Management
Chapter 13,Supply Chai n M anagement
Chapt er 14lin coving Financial Per formance with Operations Management
Part VPutting It All Together for Operational Excellence
Chapter 15,Holding the Gains
Glossary
Index
About the Authors
Conclusion
DETAILED CONTENTS
Discussion Questions
Preface
Part lIntroductiotno Healthcare Operations
Part l1Setting Goals and Executing Strategy
Chapter 1.The Challenge and the Opportunity
Chapter 4.Strategy and the Balanced Scorecard
Overview
Operations Management in Action
The Purpose of This Book
Overview
The Challenge
‘Moving Stratto eExegcuytio n
The Opportunity
The Balanced Scorecard in Heal e
A Systems Look at Healthcare
The Balanced Scorecard as of a Strategic Ma: ment System,
An Integrating Framework for Operations Management in Healthcare
Elements of the Balanced Scorecard System
Conclusion
Conclusion
Discussion Questions
Discussion Questions
References
Exercises
References
Chapter 2.History of Performance Improvernent
Furth eading
Operations Management in Action
Overview
Chapter 5.Project Management
Background
Operations Management in Action
Knowledge-Based Management
Overview
History of Scientific Management
Definition of a Project
Project Seleacnd tChiartoernin g
Pro ject Scope and Work Breakdown
Philosophiesof Performance Improvemes
Scheduling
Supply Chain Management
Project Control
Big Data and Analytics Qua lity Manag ment, Procurement, the Project Management Office, and Project
Conclusion Closure
Discussion Questions
Agile Project Management
References
novation Cent
The Project Manager and Project Team
Chapter3 , Evidence-Based Medicine and Value-Based Purchasing
Conclusion
Operations Management in Action
Discussion Questions
Overview
Exercises
Evidence-Based Medicine
References
Too! 1¢ Use of Evidence-Based Medicine
Further Reading
Clinical Decision Support
The Future of Evidence-Based Medicine and Value Purchasing
Part Il1Performance ImproTvooles,m Teechnniqtues , and Programs
Vincent Valley Hospital and Health System and Pay for Performance
Chapter 6.Tools for Problem Solving and Decision Making
Operations Management in Action
Overview
Decision-Making Framework The Six Sigma Quality Program
Techniques ‘Additional Quality Tools
Problem Identification Tools Riverview Clinic Six S 1a Generic Drug Project
Analytical Tools Conclusion
tion: Force Field Analysis Discussion Questions
Discussion Questions
Exercises
Chapter 10. The Lean Enterprise
References
Operations Management in Action
Chapter 7.Statistical Thinking and Statistical Problem Solvi Overview
Operations Management in A ction WhaIs tL ean?
Over vi ew: Statistical Th ‘Types of Waste
Kaizen
Value Stream Mapping
Additional Measures and Tools
Probabil of Lean and Six Sigma Pro}
lence Intervals and Hypothesis Testing
‘Simple Linear Regression Discussion Questions
Conclusi Exercises
Discussion Questions ences
Exercises
ications to Contemporary Healthcare Operations Issues
References
Chapter 8.Healthcare Analytics Chapter 11.Process Improvement and Patient Flow
Operations Management in Action Operations Management in Action
Overview Overview
Problem Types,
What Is Analytics in Healthcare?
duction to Data Analytics Patient Flow
Data Visualization Process Improvement Approaches
Data Mining for Discovery The Science of Lines: Queuing Theory.
Conclusion Process Improvemenitn Practice
Conclusion
Discussion Questions
Discussion Questions
Exercises
References
Chapters ality Management— Focus on Six Sigma
Further R eading
Operations Management in Action
Chapter 12,Sc hed u and Capacity Manag Overview
Operations Management in Action
Which Tools to U:
Census and Rough-Cut Capacity Planning Data and Statistics
Scheduling
Job and Operation Scheduling and Sequencing Rules ganization of tl
Sche duling Models
Discussion Questions
Study
Discussion Questions
Exercises
Ref
Chapter 13,Supply Chain Mana
Operations Management in Action
Overview
Chain Manageme
acking and Managing Inven
Demand For
Orde
urement and Vendor Relatio:
epic View
Con clusi
Discussion Questions
Exercises
Chapter 14.Improving Financial Performance with Operations Management
Operations Management in Action
Making Ends Meet on Medicare and the Pressureo f Narrow Networks
Conclusio n
Discussion Questions
Exercises
Note
References
Part VPutIt tAlli Tongegthe r for Operational Excellence
Chapter 15,Holding the Gains
particular course or student.
PREFACE
The first part of the book, Introduction to Healthcare Operations, begins with
an overview of the challenges and opportunities found in today's healthcare envi-
This book is intended to help healthcare professionals meet the challenges and
ronment (chapte1r) . We follow with a history of the field of management science
take advantage of the opportunities found in healthcare today. We believe that the
and operations improvement (chapte2r) . Next, we discuss two of the most influ
answers to many of the dilemmas faced by the US healthcare system, such as in-
ential environmental changes facing healthcare today: evidence-based medicine
creasing costs, inadequate access, and uneven quality, lie in organizational opera-
and value-based purchasing, or simply value purchasing (chapter3)
tions—the nuts and bolts of healthcare delivery. The healthcare arena is filled with
In part LI, Setting Goals and Executing Strategy, chai pter_4 highlights the
opportunities for significant operational improvements. We hope that this book en-
importance of tying the strategic direction of the organization to operational initia-
courages healthcare management students and working professionals to find ways
tives. This chapter outlines the use of the balanced scorecard technique to execute
to improve the management and delivery of healthcare, thereby increasing the
and monitor these initiatives toward achieving organizational objectives. Typically,
effectiveness and efficiency of tomorrow's healthcare system
strategic initiatives are large in scope, and the tools of project management
Many industries outside healthcare have successfully used the programs
(chapters) are needed to successfully manage them. Indeed, the use of project
techniques, and tools of operations improvement for decades. Leading healthcare
management tools can help to ensure the success of any size project. Strategic
organizations have now begun to employ the same tools. Although numerous
focus and project management provide the organizational foundation for the re-
other operations management texts are available, few focus on healthcare opera:
mainder of this book.
tions, and none takes an integrated approach. Students interested in healthcare
The next part of the book, Performance Improvement Tools, Techniques, and
process improvement have difficulty seeing the applicability of the science of
Programs, provides an introduction to basic decision-making and problem-solving
operations management when most texts focus on widgets and production lines
processes and describes some of the associated tools (chay ter 6). Most perfor-
rather than on patients and providers.
‘mance improvement initiatives (e.g., Six Sigma, Lean) follow these same processes
This book covers the basics of operations improvement and provides an over-
and make use of some or all of the tools discussed in chapter
view of the significant trends in the healthcare industry. We focus on the strategic
Good decisions and effective solutions are based on facts, not intuition.
implementation of process improvement programs, techniques, and tools in the
Chapter 7 provides an overview of data collection processes and analysis tech-
healthcare environment, with its complex web of reimbursement systems, physi-
nique s to enable fact-based decision making. Chapter 8 builds on the statistical ap-
cian relations, workforce challenges, and governmental regulations. This integrated
proaches of cha ter_7 by presenting the new tools of advanced analytics and big
approach helps healthcare professionals gain an understanding of strategic opera-
data.
tions management and, more important, its applicability to the healthcare field.
Six Sigma, Lean, simulation, and supply chain management are specific
philosophies or techniques that can be used to improve processes and systems
The Six Sigma methodology (chapte9r) is the latest manifestation of the use of
How This Book Is Organized
quality improvement tools to reduce variation and errors in a process. The Lean
We have organized this book into five parts: methodology (chapter 10) is focused on eliminating waste in a system or process.
The fourth section of the book, Applications to Contemporary Healthcare
1. Introduction to Healthcare Operations Operations Issues, begins with an integrated approach to applying the various
2. Setting Goals and Executing Strategy tools and techniques for process improvement in the healthcare environment
3. Performance Improvement Tools, Techniques, and Programs
(chapter 11). We then focus on a special and important case of process improve-
4. Applications to Contemporary Healthcare Operations Issues ‘ment: patient scheduling in the ambulatory setting (chapter 12)
5. Putting It All Together for Operational Excellence Supply chain management extends the boundaries of the hospital or health-
care system to include both upstream suppliers and downstream customers, and
Although this structure is helpful for most readers, each chapter also stands alone,
this is the focus of chapter 13. The need to “bend” the healthcare cost inflation
and the chapters can be covered or read in any order that makes sense for a
curve downward is one of the most pressing issues in healthcare today, and the
use of operations management tools to achieve this goal is addressed in chapter ‘Apold (now with Optum) as true agents for change in the US healthcare system.
1. The dedicated employees of the Veterans Administration have helped John
Part V, Putting It All Together for Operational Excellence, concludes the book embrace the challenges that confront healthcare today—in particular Christine
with a discussion of strategies for implementing and maintaining the focus on con. Wolohan, Lori Fox, Susan Chattin, Eric James, Denise Lingen, and Carl (Marty)
tinuous improvement in healthcare organizations (chapter 15) Young of the continuous improvement group, who are helping to create an organi-
Many features in this book should enhance student understanding and learn- zation of excellence. John acknowledges their dedication to serving US veterans
ing. Most chapters begin with a vignette, called Operations Management in Action, and the amazing, high-quality service they deliver.
that offers a real-world example related to the content of that chapter. Throughout John and Dan also want to thank the skilled professionals of Health Adminis-
the book, we use a fictitious but realistic organization, Vincent Valley Hospital and tration Press for their support, especially Janet Davis, acquisitions editor, and Joyce
Health System, to illustrate the various tools, techniques, and programs discussed Dunne, who edited this third edition.
Each chapter concludes with questions for discussion, and parts Il through IV in- Finally, this book still contains many passages that were written by Julie Hays
clude exercises to be solved and are a tribute to her skill and dedication to the field of operations management.
We include abundant examples throughout the text of the use of various con-
temporary software tools essential for effective operations management. Readers
will see notes appended to some of the exhibits, for example, that indicate what Instructor Resources
software was used to create charts, graphs, and so on from the data provided.
Healthcare leaders and managers must be experts in the application of these tools,
This book's Instructor Resources include PowerPoint slides; an updated test
and stay current with the latest versions. Just as we ask healthcare providers to stay
bank; teaching notes for the end-of-chapter exercises; Excel files and cases
up-to-date with the latest clinical advances, so too must healthcare managers stay
for selected chapters; and new case studies, for most chapters, with accom-
current with basic software tools panying teaching notes. Each of the new case studies is one to three pages
long and is suitable for one class session or an online learning module.
Acknowledgments
For the most up-to-date information about this book and its Instructor Re
sources, visit ache.org/HAP and browse for the book's title or author
‘A number of people contributed to this work. Dan McLaughlin would like to thank
names
his many colleagues at the University of St. Thomas Opus College of Business.
Specifically, Dr. Ernest Owens provided guidance on the project management
This book's Instructor Resources are available to instructors who adopt this
chapter, and Dr. Michael Sheppeck assisted on the human resources implications
book for use in their course. For access information, please e-mail
of operations improvement. Dean Stefanie Lenway and Associate Dean Michael
[email protected].
Garrison encouraged and supported this work and helped create our new Center
for Innovation in the Business of Healthcare.
Dan would also like to thank the outstanding professionals at Hennepin
County Medical Center in Minneapolis, Minnesota, who provided many of the
Student Resources
practical and realistic examples in this book. They continue to be invaluable health
care resources for all of the residents of Minnesota
Case studies, exercises, tools, and web links to resources are available at
John Olson would like to thank his many colleagues at the University of St
Thomas Opus College of Business. In addition, he would like to thank the Minne
sota Hospital Association (MHA). Attributing much of his understanding of
healthcare analytics to working with the highly professional staff of the MHA, he
wishes to acknowledge Rahul Korrane, Tanya Daniels, Mark Sonneborn, and Julie
