Specialty hospitals emulating focused factories: a case study.

PURPOSE

For 15 years general hospital managers faced new competition from for-profit specialty hospitals that operate on a "focused factory" model, which threaten to siphon-off the most profitable patients. This paper aims to discuss North American specialty hospitals and to review rising costs impact on general hospital operations. The focus is to discover whether specialty hospitals are more efficient than general hospitals; if so, how significant is the difference and also what can general hospitals do in light of the rising specialty hospitals.

DESIGN/METHODOLOGY/APPROACH: The case study involves stochastic frontier regression analysis using Cobb-Douglas and Translog cost functions to compare Minnesota general and specialty hospital efficiency. Analysis is based on data from 117 general and 19 specialty hospitals.

FINDINGS

The results suggest that specialty hospitals are significantly more efficient than general hospitals. Overall, general hospitals were found to be more than twice as inefficient compared with specialty hospitals in the sample. Some cost-cutting factors highlighted can be implemented to trim rising costs.

PRACTICAL IMPLICATIONS

The case study highlights some managerial levers that general hospital operational managers might use to control rising costs. This also helps them compete with specialty hospitals by reducing overheads and other major costs.

ORIGINALITY/VALUE: The study is based on empirical modeling for an important healthcare operational challenge and provides additional in-depth information that has health policy implications. The analysis and findings enable healthcare managers to guide their institutions in a new direction during a time of change within the industry.