Healthcare Operations Management

Healthcare Operations Management

This book is intended to help healthcare professionals meet the challenges and take advantage of the opportunities found in healthcare today. We believe that the answers to many of the dilemmas faced by the US healthcare system, such as increasing costs, inadequate access, and uneven quality, lie in organizational operations—the nuts and bolts of healthcare delivery. The healthcare arena is filled with opportunities for significant operational improvements. We hope that this book encourages healthcare management students and working profession- als to find ways to improve the management and delivery of healthcare, thereby increasing the effectiveness and efficiency of tomorrow’s healthcare system.

Many industries outside healthcare have successfully used the programs, techniques, and tools of operations improvement for decades. Leading health- care organizations have now begun to employ the same tools. Although numer- ous other operations management texts are available, few focus on healthcare operations, and none takes an integrated approach. Students interested in healthcare process improvement have difficulty seeing the applicability of the science of operations management when most texts focus on widgets and production lines rather than on patients and providers. Healthcare Operations Management

This book covers the basics of operations improvement and provides an overview of the significant trends in the healthcare industry. We focus on the strategic implementation of process improvement programs, techniques, and tools in the healthcare environment, with its complex web of reimburse- ment systems, physician relations, workforce challenges, and governmental regulations. This integrated approach helps healthcare professionals gain an understanding of strategic operations management and, more important, its applicability to the healthcare field.

How This Book Is Organized

We have organized this book into five parts:

1. Introduction to Healthcare Operations 2. Setting Goals and Executing Strategy 3. Performance Improvement Tools, Techniques, and Programs

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4. Applications to Contemporary Healthcare Operations Issues 5. Putting It All Together for Operational Excellence

Although this structure is helpful for most readers, each chapter also stands alone, and the chapters can be covered or read in any order that makes sense for a particular course or student.

The first part of the book, Introduction to Healthcare Operations, begins with an overview of the challenges and opportunities found in today’s healthcare environment (chapter 1). We follow with a history of the field of management science and operations improvement (chapter 2). Next, we discuss two of the most influential environmental changes facing healthcare today: evidence-based medicine and value-based purchasing, or simply value purchasing (chapter 3).

In part II, Setting Goals and Executing Strategy, chapter 4 highlights the importance of tying the strategic direction of the organization to operational initiatives. This chapter outlines the use of the balanced scorecard technique to execute and monitor these initiatives toward achieving organizational objec- tives. Typically, strategic initiatives are large in scope, and the tools of project management (chapter 5) are needed to successfully manage them. Indeed, the use of project management tools can help to ensure the success of any size project. Strategic focus and project management provide the organizational foundation for the remainder of this book.

The next part of the book, Performance Improvement Tools, Tech- niques, and Programs, provides an introduction to basic decision-making and problem-solving processes and describes some of the associated tools (chapter 6). Most performance improvement initiatives (e.g., Six Sigma, Lean) follow these same processes and make use of some or all of the tools discussed in chapter 6.

Good decisions and effective solutions are based on facts, not intuition. Chapter 7 provides an overview of data collection processes and analysis tech- niques to enable fact-based decision making. Chapter 8 builds on the statistical approaches of chapter 7 by presenting the new tools of advanced analytics and big data.

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 (chapter 9) is the latest manifestation of the use of quality improvement tools to reduce variation and errors in a process. The Lean methodology (chapter 10) is focused on eliminating waste in a system or process. Healthcare Operations Management

The fourth section of the book, Applications to Contemporary Health- care Operations Issues, begins with an integrated approach to applying the various tools and techniques for process improvement in the healthcare environ- ment (chapter 11). We then focus on a special and important case of process improvement: patient scheduling in the ambulatory setting (chapter 12).


Supply chain management extends the boundaries of the hospital or healthcare system to include both upstream suppliers and downstream custom- ers, and this is the focus of chapter 13. The need to “bend” the healthcare cost inflation 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 14.

Part V, Putting It All Together for Operational Excellence, concludes the book with a discussion of strategies for implementing and maintaining the focus on continuous improvement in healthcare organizations (chapter 15).

Many features in this book should enhance student understanding and learning. Most chapters begin with a vignette, called Operations Management in Action, that offers a real-world example related to the content of that chapter. Throughout the book, we use a fictitious but realistic organization, Vincent Valley Hospital and Health System, to illustrate the various tools, techniques, and programs discussed. Each chapter concludes with questions for discussion, and parts II through IV include exercises to be solved.


We include abundant examples throughout the text of the use of various contemporary software tools essential for effective operations management. Readers will see notes appended to some of the exhibits, for example, that indicate what software was used to create charts, graphs, and so on from the data provided. Healthcare leaders and managers must be experts in the appli- cation of these tools and stay current with the latest versions. Just as we ask healthcare providers to stay up-to-date with the latest clinical advances, so too must healthcare managers stay current with basic software tools. Healthcare Operations Management


A number of people contributed to this work. Dan McLaughlin would like to thank his many colleagues at the University of St. Thomas Opus College of Business. Specifically, Dr. Ernest Owens provided guidance on the project man- agement chapter, and Dr. Michael Sheppeck assisted on the human resources implications of operations improvement. Dean Stefanie Lenway and Associate Dean Michael 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 practical and realistic examples in this book. They continue to be invaluable healthcare resources for all of the residents of Minnesota.

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 Minnesota Hospital Association (MHA). Attributing much of his under- standing of healthcare analytics to working with the highly professional staff

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of the MHA, he wishes to acknowledge Rahul Korrane, Tanya Daniels, Mark Sonneborn, and Julie Apold (now with Optum) as true agents for change in the US healthcare system.

The dedicated employees of the Veterans Administration have helped John embrace the challenges that confront healthcare today—in particular Christine Wolohan, Lori Fox, Susan Chattin, Eric James, Denise Lingen, and Carl (Marty) Young of the continuous improvement group, who are helping to create an organization of excellence. John acknowledges their dedication to serving US veterans and the amazing, high-quality service they deliver. Healthcare Operations Management

John and Dan also want to thank the skilled professionals of Health Administration Press for their support, especially Janet Davis, acquisitions edi- tor, and Joyce Dunne, who edited this third edition.

Finally, this book still contains many passages that were written by Julie Hays and are a tribute to her skill and dedication to the field of operations management. Healthcare Operations Management

Instructor Resources

This book’s Instructor Resources include PowerPoint slides; an updated test bank; teaching notes for the end-of-chapter exercises; Excel files and cases for selected chapters; and new case studies, for most chapters, with accompanying 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.

For the most up-to-date information about this book and its Instructor Resources, visit and browse for the book’s title or author names.

This book’s Instructor Resources are available to instructors who adopt this book for use in their course. For access information, please e-mail

Student Resources

Case studies, exercises, tools, and web links to resources are available at





The Purpose of This Book

Excellence in healthcare derives from four major areas of expertise: clinical care, population health, leadership, and operations. Although clinical expertise, the health of a population, and leadership are critical to an orga- nization’s success, this book focuses on operations—how to deliver high- quality health services in a consistent, efficient manner. Healthcare Operations Management

Many books cover opera- tional improvement tools, and some focus on using these tools in health- care environments. So why have we devoted a book to the broad topic of healthcare operations? Because we see a need for organizations to adopt an integrated approach to operations improvement that puts all the tools in a logical context and provides a road map for their use. An integrated approach uses a clinical analogy: First, find and diagnose an operations issue. Second, apply the appropriate treat- ment tool to solve the problem.

The field of operations research and management science is too deep to cover in one book. In Healthcare Operations Management, only those tools and techniques currently being deployed in leading healthcare organi- zations are covered, in part so that we may describe them in enough detail Healthcare Operations Management

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