Matching Supply and Demand for Hospital Services

Hospitals are nearly synonymous with the idea of a healthcare delivery system. They provide three main types of services: surgical services, emergency services, and inpatient services. In addition, some hospitals have outpatient clinics and facilities in which specialist consults and surgical services are provided on an outpatient basis. What challenges do hospital managers face in matching supply and demand for hospital services while maintaining service quality and keeping costs low? To what extent and how has the Operations Management (OM) literature contributed to addressing these challenges? What are emerging trends in practice? What opportunities and additional challenges do they pose for the OM researchers? This monograph is the authors’ attempt to address the questions posed above. Although service capacity could very well be defined in terms of the numerical count of physical and human resources, we have chosen to focus on the three main types of services that hospitals provide. In doing so, we expose the interconnectedness of these services and the challenges that arise due to the cascading effects of mismatches in any one area on all other hospital operations. Our goal is to expose key issues from practitioner perspectives, use representative data to highlight problems that are amenable to modeling using operations management tools, summarize state of the art in modeling such problems, and identify opportunities for future research. The monograph underscores several important observations. First, hospital administrators need to consider forces affecting demand and supply for services both inside and outside the hospital walls. Specifically, the option to shape and smooth demand for services, which is often underutilized, may provide significant new opportunities to lower the cost of matching demand and supply. Second, hospitals need both careful advance planning, based on patterns observed in historical data, as well as dynamic response strategies to unfolding reality that forces inevitable deviations from plans. Effective dynamic response may require administrators to invest in building alliances with other hospitals and flexibility (e.g. contingent staff). Third, the role of hospitals is changing. Innovations in payment mechanisms that bundle payment to hospitals and doctors, and offer incentives for lowering costs, are creating the need to design and implement effective gainsharing plans. These same forces have also increased the importance for hospital administrators of choosing the right number and specialization of salaried physicians, and building alliances with both upstream (e.g. primary care clinics) and downstream (e.g. skilled nursing facilities) service providers. OM researchers have addressed some of these topics, but significant new opportunities abound.