The effect of experience, ownership and focus on productive efficiency: A longitudinal study of U.S. hospitals

• Published date: 01 January 2014
• DOI: http://doi.org/10.1016/j.jom.2013.10.002
• Author: David Xin Ding
• Date: 01 January 2014

Journal

of

Operations

Management

32

(2014)

1–14

Contents

lists

available

at

ScienceDirect

Journal

of

Operations

Management

j

o

ur

na

l

ho

mepage:

www.elsevier.com/locate

/jom

The

effect

of

experience,

ownership

and

focus

on

productive

efficiency:

A

longitudinal

study

of

U.S.

hospitals

David

Xin

Ding∗

University

of

Houston

Information

and

Logistics

Technology

Dept.,

T2-230C

Houston,

TX

77204,

United

States

a

r

t

i

c

l

e

i

n

f

o

Article

history:

Received

30

June

2012

Received

in

revised

form

17

September

2013

Accepted

30

October

2013

Available

online

7

November

2013

Keywords:

Organizational

learning

Hospital

ownership

Focus

Productive

efficiency

Experience

a

b

s

t

r

a

c

t

Focusing

on

organizational

learning

research

in

healthcare

settings,

this

paper

studies

how

experience,

ownership

and

focus

affect

productive

efficiency

in

U.S.

hospitals.

Building

on

organizational

learning

theory,

health

economics

and

the

focused

factory

concept,

we

propose

that

hospitals

learn

to

improve

productive

efficiency

and

the

relationship

between

productive

efficiency

and

cumulative

experience

is

curvilinear.

We

also

hypothesize

that

clinical

focus

has

a

positive

effect

on

productive

efficiency

and

that

nonprofit

hospitals

and

proprietary

hospitals

trade

off

costs

and

quality

differently.

The

proposed

hypotheses

are

tested

with

yearly

performance

data

for

over

3700

major

U.S.

hospitals

spanning

from

1996

to

2010.

We

find

strong

support

for

the

proposed

hypotheses.

©

2013

Elsevier

B.V.

All

rights

reserved.

1.

Introduction

Between

1990

and

2009,

the

average

in-hospital

stay

length

reduced

from

6.4

days

to

4.8

days

(National

Center

for

Health

Statistics

2011,

Table

103).

However,

national

health

expenditures

increased

significantly

from

$724

billion

to

$2,486.3

billion

over

this

period,

or

343.41%

(National

Center

for

Health

Statistics

2011,

Table

125).

According

to

expenditure

studies

conducted

by,

Fuchs

(2005)

and

Bush

(2007),

the

efficiency

associated

with

hospital

operations

is

low.

Here

we

adopt

Association

for

Healthcare

Research

and

Quality

(AHRQ)’s

definition

of

efficiency

as

producing

outputs

at

lower

costs

(Greenberg

and

Campion,

2006).

Although

the

comprehensive

health

care

reform

was

expected

to

improve

the

system

through

quality

improvements

and

cost

reductions,

no

agreement

has

been

reached

concerning

its

over-

all

effects

(Kocher

and

Sahni,

2010;

Orszag

and

Emanuel,

2010).

A

natural

question

that

arises

from

the

debate

is:

whether

U.S.

hospitals,

known

for

their

“notorious”

costs

(Porter

and

Teisberg,

2006),

ever

learned

to

improve

efficiency?

Understanding

how

hospitals

learn

to

reduce

costs

while

delivering

quality

care

is

of

critical

importance

to

meet

the

aims

of

Affordable

Care

Act.

Prior

research

has

empirically

examined

how

experience

affects

clini-

cal

performance

for

certain

surgical

procedures

(Black

et

al.,

2004;

Huckman

and

Pisano,

2006;

Tucker

et

al.,

2007).

However,

limited

∗Corresponding

author.

Tel.:

+1

713

743

4095.

E-mail

address:

xding@uh.edu

research

exists

on

how

hospitals

learn

through

cumulative

experi-

ence

and

even

fewer

studies

attempt

to

identify

contextual

factors

that

may

contribute

to

hospital-wide

learning

(Pisano

et

al.,

2001).

Have

hospitals

learned

to

improve

productive

efficiency

through

cumulative

patient

volume?

Do

operational

characteristics

such

as

clinical

focus

affect

the

learning

rates?

Is

there

a

tradeoff

between

productive

efficiency

and

quality?

This

research

aims

to

answer

those

research

questions.

In

this

study,

we

empirically

examined

productive

efficiency

across

U.S.

short-stay

acute-care

hospitals,

using

cost

reports

col-

lected

by

the

Centers

for

Medicare

and

Medicaid

services

(CMS).

We

merged

the

CMS

data

with

hospital

records

collected

by

the

Amer-

ican

Hospital

Association

(AHA)

and

identified

longitudinal

data

on

characteristics

and

cost

performance

for

over

3700

hospitals

from

1996

to

2010.

We

also

identified

hospital

quality

performance

with

hospital

mortality

rates,

readmission

rates

and

patient

experience

released

by

AHRQ.

This

unique

dataset

allows

us

to

compare

learn-

ing

rates

and

outcomes

among

hospitals

with

varying

clinical

focus

by

controlling

for

relevant

characteristics.

Based

on

a

longitudinal

analysis

of

the

national

sample

of

hos-

pitals,

our

results

show

that

hospitals

indeed

learned

to

control

operating

costs

and

thus

to

improve

productive

efficiency

through

cumulative

patient

volume.

The

finding

is

subject

to

the

control

of

inflation

and

a

range

of

confounding

factors

including

legislations,

labor

costs,

insurances,

patient

mixes,

and

relevant

hospital

char-

acteristics.

We

also

find

that

clinical

focus

has

a

positive

impact

on

hospital

performance

as

highly

focused

hospitals

learned

faster

than

their

counterparts

in

controlling

operating

costs.

Lastly,

our

0272-6963/$

–

see

front

matter

©

2013

Elsevier

B.V.

All

rights

reserved.

http://dx.doi.org/10.1016/j.jom.2013.10.002