On the tension between standardized and customized policies in health care: The case of length‐of‐stay reduction

• Author: Matthias Holweg,Rodolfo Catena,Sue Dopson
• Date: 01 January 2020
• DOI: http://doi.org/10.1002/joom.1016
• Published date: 01 January 2020

RESEARCH ARTICLE

On the tension between standardized and customized policies in

health care: The case of length-of-stay reduction

Rodolfo Catena | Sue Dopson | Matthias Holweg

Saïd Business School, University of Oxford,

Oxford, UK

Correspondence

Matthias Holweg Saïd Business School,

University of Oxford, Oxford OX1 1HP,

UK.

Email: matthias.holweg@sbs.ox.ac.uk

Handling Editors: Lawrence Fredendall,

Anand Nair, Jeffery Smith, and Anita

Tucker

Abstract

Hospitals increasingly adopt standardized policies as a way to improve the efficiency

of health care delivery. One key policy has been to reduce a patient's length of stay,

which is commonly perceived as an effective means of improving patient outcome,

as well as reducing the cost per procedure. We put this notion to the empirical test

by using a database of 183,712,784 medical records of patients in the English NHS

between 1998 and 2012, studying the effects of the NHS's policy of decreasing

length of stay for hernia patients. While we found it to be an effective way of reduc-

ing the cost per procedure, on aggregate, we also found that it increases the risk of

readmission and of death for vulnerable and elderly patients, unduly increasing the

long-term failure costs of the operation for these patient groups. Based on our find-

ings, we propose a differentiated policy to selectively decrease length of stay, which

we estimate could save up to US$565 per nonemergency hernia procedure (19.97%

reduction in the cost per procedure). We outline the implications of our findings for

medical practice and discuss the wider theoretical contributions to the wider

standardization-customization debate in health care operations management.

KEYWORDS

customization, health care operations, lead-time reduction, patient outcome, standardization

1|INTRODUCTION

Health care costs represent a considerable proportion of the

gross domestic product (GDP) across most developed coun-

tries; for instance, in 2012, health care expenses amounted to

$2.9 trillion in the United States (17.1% of the GDP or $9,060

per capita) and $245.8 billion in the United Kingdom (9.1%

of the GDP or $3,802 per capita) (World Bank, 2015). As a

consequence, there has been a growing political emphasis on

curbing health care expenditures, with a major focus on

improving the efficiency of hospital operations (Farchi &

Salge, 2017; Kaplan & Porter, 2011). The adoption of stan-

dard policies in hospitals has become a common means by

which to increase efficiency (Bohmer, 2009): as an example,

more and more hospitals have been adopting clinical guide-

lines to manage the delivery of care (Andritsos & Tang, 2014),

and hospital managers have been increasingly using process

improvement methodologies from the manufacturing con-

text, such as lean production (Farchi & Salge, 2017; Radnor,

Holweg, & Waring, 2012; Radnor, Walley, Stephens, &

Bucci, 2006). Despite the increasing levels of the adoption of

standard policies, “one-size fits all”solutions could have nega-

tive consequences in health care. Several studies (Fogliatto, da

Silveira, & Borenstein, 2012; Piller, Moeslein, & Stotko,

2004; Squire, Readman, Brown, & Bessant, 2004) have sug-

gested that customized solutions can increase the value offered

to customers and decrease integration costs.

We propose that, in some contexts, increasing length of

stay for some patients can decrease long-term failure costs

because tailored solutions can decrease the proportion of

This paper was first submitted on October 26, 2016.

Received: 28 November 2017 Revised: 1 October 2018 Accepted: 13 December 2018

DOI: 10.1002/joom.1016

J Oper Manag. 2020;66:135–150. wileyonlinelibrary.com/journal/joom © 2019 Association for Supply Chain Management, Inc. 135

readmissions and, in turn, lead to a reduction of the costs that

arise as a result of complications. Our study complements

earlier studies that have analyzed length of stay as a depen-

dent variable (Aldoescu, Patrascu, & Brezean, 2015; KC &

Terwiesch, 2011). In our study, however, length of stay is an

independent variable as we focus on its interaction effects.

We examined the link between length of stay and

patient outcome using 183,712,784 medical records of

patients in the National Health Service (NHS) as there is a

growing interest in the adoption of standard policies in the

English health care system (Department of Health, 2012a).

Standardized policies are one of the key features of the

quality, innovation, productivity, prevention (QIPP) pro-

gram, which has the objective to enhance the management

of operations in the NHS (British Medical Association,

2010). Given the high correlation between length of stay

and hospital expenditures, a specific goal of this program is

pushing hospital managers to decrease patients' length of

stay (National Institute for Clinical Excellence, 2012a,

2012b). The motivation behind this decision is that empiri-

cal evidence suggests a positive relationship between

length of stay and risk of hospital-acquired infections

(HAIs) (Hassan, Tuckman, Patrick, Kountz, & Kohn, 2010;

Mitchell & Gardner, 2012). However, we argue that an

early discharge can also expose some groups of patients to

avoidable risk factors such as stress and lack of care.

For the purpose of this study, we focused on the most com-

mon procedure a general surgeon performs, the hernia repair

(Nyhus, Klein, & Rogers, 1991; Rutkow, 2003; Rutkow &

Robbins, 1993). As shown in Figure 1 that illustrates age/gen-

der-adjusted average length of stay and readmission/death

rates, inguinal hernia patients have been spending less time in

NHS hospitals. However, readmission rates have been increas-

ing sharply, suggesting that some patients are not receiving

adequate care and, for this reason, need to be readmitted to hos-

pital. It is important to note that, while readmission rates have

been increasing, mortality has been decreasing at a steady pace,

indicating that length-of-stay reduction may not be a significant

contributor to a patient's likelihood of death.

One of the reasons for keeping patients in hospital for lon-

ger is to monitor them, especially when they have previous

conditions or they are very old. In this study, we specifically

considered the empirical boundaries of this decision, investi-

gating whether the impact of length-of-stay reduction is the

same for patients of different age and physical condition.

We chose to concentrate on NHS inguinal hernia patients,

because this operation is the fifth most common general sur-

gery procedure performed in the English health care system,

accounting for 0.625% of all procedures performed. The

length of stay for hernia patients has declined from approxi-

mately six weeks in the 1940s to less than one night in hospi-

tal today (Royal College of Surgeons, 2013; Scambler, 2008).

In order to assess the overall impact of readmissions on NHS

costs, we calculated the average cost ofa hospital readmission

using the methodology illustrated in Department of Health

(2012b) (2011 prices). Although decreasing, the average cost

of a hospital readmission after inguinal hernia surgery was

still more than £1, 400 (US$2,235) in 2009.

We studied the effects of length-of-stay reduction

using Hospital Episode Statistics (HES) and Hospital

Estates and Facilities Statistics (HEFS) data. While HES

data provide information on NHS patients, such as their

demographic profile, the diagnoses from the physicians,

and the procedures they undergo, HEFS data provide

information on NHS hospitals, such as number of beds

and teaching status. We controlled for other factors that

can affect hospital outcomes including previous chronic

conditions. Finally, we modeled the impact of state of

health and age on length of stay using an interaction term.

On a theoretical level, we found that shorter length of

stay on aggregate decreases hospital costs. Yet, at its bound-

aries, it can have negative long-term consequences. In spite

of this consideration, the increase of health care expendi-

tures is pushing hospital managers toward short-term strate-

gies, such as length-of-stay reduction, that do not look at the

whole cycle of care but often address only the immediate

needs of the patients and result in higher long-term costs

(Porter & Teisberg, 2006).

The economic implication of this research is that health

care policies needto consider the case-mix complexityof their

patient base when they implement length-of-stay reduction

strategies. Despite the negative long-term effects for sicker

patients and the elderly, this research suggests that decreasing

length of stay for healthy patients, on aggregate, may be an

effective strategy to curb health care expenditures. By diversi-

fying the policy, however, one could both reap the benefits

from shorter length of stay for the majority of patients, while

reducing the risk (and associated cost) of readmission for cer-

tain patient groupsat higher risk of complications. On balance,

we estimated that such a diversified policy could save up to

£354 (US$565) per nonemergency procedure, which equates

to a 19.97% reduction in total cost for all elective hernia proce-

dures performedon adults.

The next section develops the research hypotheses,

Section 3 explains the method used in this research, and

Section 4 presents the results of the empirical analyses.

Finally, Section 5 discusses the practical relevance of our

findings and outlines our contributions to the debates in health

care operations management.

2|HYPOTHESIS DEVELOPMENT

Henry Ford famously stated that his customers could buy his

cars in any color they wanted “so long as it is black”(York,

136 CATENA ET AL.