Shouldice Hospital

Operations Management Case Analysis

Group 4

Agrim Gupta (1511001)

Sachin Xalxo (1511048)
Udit Jalan (1511063)
Vaishnavi S (1511065)
Vivek T (1511068)

Contents
1 ABSTRACT

2 SUCCESS OF SHOULDICE HOSPITAL

3 HOSPITAL PERFORMANCE FACTORS

4 EXPANSION AND GROWTH OPTIONS

5 IMPLEMENTING CHANGES

6 APPENDICES

Abstract

In the present study, we look at the success of Shouldice Hospital which can broadly be assessed in
three ways their business performance, their medical processes and their internal organizational metrics.
Next we move to understand the factors which drive their performance and see how operational efficiency
combined with innovative surgical techniques and excellent employee and patient management result in
the success which the hospital has achieved. However, the hospital now been limited by its capacity and
we analyze various options to expand their capacity. Finally, we come up with a recommendation and
look at how it can actually be implemented by the hospital.

Success of Shouldice Hospital

The Shouldice Hospital has been extremely successful. The business performance is outstanding; the
medical processes are more successful than others', and their internal organizational metrics are good.
For a services business, performance metrics should first indicate growth and stability - as well as demand
for the service. Also, the customers should be so happy with the services that they strongly recommend it
in their circles - by themselves. Also, internal metrics should indicate a happy set of employees - willing
to contribute to the business success of the organization. Shouldice hospital has scored well in all these
regards and their business is so successful that others have tried imitating them! Let us quickly see the
success metrics and then we will elaborate on the reason for these successes in later sections.
The hospital performed ~ 7600 operations per year with just 89 beds which is many times more
hernia surgeries than other hospitals. The treatment charges are almost half of other hospitals and this also
attracts patients from distant places (~70% patients come from outside Toronto area and even from USA).
This has ensured a steady and strong influx of patients. The number of backlog patients has been growing
by 100 every six months and is currently 2400 patients which shows huge demand for the hospitals
services. These strong numbers have been achieved primarily by only word-of-mouth via friends, relative,
and doctors as indicated by a DePaul University survey. All these numbers show good business success.
From a medical process perspective - the hospital was very successful as well. The innovative surgery
procedure and post-operative care methods resulted in an extremely low recurrence rate of 0.8% for the
last 3 decades compared to the general rate of ~10% recurrence in external hernias. The careful planning
and structuring of the entire treatment has also resulted in a short 3-5 day stay. Simple decisions by the
hospital went a great way in ensuring rapid recovery and patient satisfaction.
Employee management at Shouldice has been exemplary. Starting from selection, training, feedback,
life-balance and compensation - everything works out in the favor of the employees. Humanitarian
policies like not firing anyone, and ensuring a comfortable schedule for doctors and staff alike - has
ensured that employees do not feel pressed at work and perform to the best of their abilities. They had a
waiting list of nurses wanting to be hired which was very significant as other hospitals in the region were
short-staffed and always recruiting.

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1

Hospital Performance Factors

Process efficiency

The Shouldice Method is an innovative procedure and a key factor in the efficiency of the hospital.
The procedure involves local anesthesia and rapid recovery. Patients are pre-screened to ensure they are
relatively healthy and have the specific type of external hernia that is treated at Shouldice. This helped in
reducing variations in the service requirements and efficient scheduling of operation times. This,
combined with in-house training for the operation method - led to a consistent standardization of
procedures. There was an efficient schedule for doctors and patients - and the constant flux of patients and
strong demands could have helped in having a low inventory pile-up. Recovered patient would check out
in the morning and new admits would arrive by 1-3 PM. As a result of all above factors, the hospital has a
low flow time of 4 days only and a high turnover of 750 patients per surgeon per year as compared to 25-

50 patients for other hospital. With a Bed utilization of 95.26% the hospital runs like a clockwork service
factory.

Quality control

The low recurrent rate is due to a mixture of several steps and techniques that improve quality.
Employees are selected by Dr. Obney after carefully considering their education, skills, experience,
background, and willingness. Once inducted, the new surgeons receive hands-on training under
supervision in the Shouldice method over a period of few months. All existing surgeons offer advice and
help to ensure the culture of group effort is continued. Pre-assignment of patients allowed surgeons to
collect adequate knowledge about the patient. Rotation of the surgeons and skill-wise assignment on
complex cases also ensured consistency in skill and exposure with knowledge sharing. In case there was a
recurrence - the initial surgeon was first put in place to learn what the mistake was and then further
treatment was done. Low & consistent operation hours coupled with coffee breaks in between ensured
that surgeons performed at their peak. The in house production of food enabled strict quality control and
high accountability. Holistic policies have also lead to very good employee retention and is a very
potential item for indirectly contributing to quality control as the knowledge stays within the hospital and
keeps getting improved.

Lower operating costs

The efficient scheduling and lower inventory discussed above leads to lower process costs - among
other factors. In house production of food can also lead to lower costs besides the improved quality. High
degree of focus and specialization as discussed previously can also lead to lower overheads and lower
capital & labor requirements over-time. The equipment required for the entire operation is not highly
specialized - only two mobile anesthesia units are needed. Further - due to proper selection of relatively
healthy patients and major use of local anesthesia post operative care was extremely low cost.

Patient Satisfaction

Shouldice Hospital excelled in identifying what was most valued by their customers (the patients) and
delivering that successfully. From the survey results we can see that the patients regarded the operating
procedure, physicians care and nursing care to be most important. The hospital excelled here because
of their innovative procedure, experienced surgeons and nurses who spent a very large portion of their
time in counseling patients. All the respondents of the survey felt (either definitely or most definitely) that
the hospital cared for them as a person. This is a great testament to the hospitals success in ensuring their
customers perceive their service as excellent. Further they charged very reasonable rates with an average
price of $1990 per surgery (see Appendix 63) as opposed to an average charge of $5240 elsewhere. Such
low prices also attracted patients from other cities in North America to travel to Toronto as the flight costs
are only about $200 to $600. Further the hospital offered free annual checkups to its alumni.

Patient Management

The hospital had good policies to ensure that patients get maximum value from the service. Parents &
children were allowed to stay with their respective patients to help uplift patient sentiment and also lower
requirement of nurse staff. Patients were internally motivated to get up and keep themselves mobile and
exercising by various means - to help in speedy recovery. There were no TVs or phones in the patient
room. There were specially designed recreational facilities like pool, exercise, and sunroom. Carpets all
over the hospital made the atmosphere seem less hospital-like - and helped prevent serious injuries to
patients. The pairing of patients was done as much possible by ensuring a similar background and profile
for both of them. Tea time at 9pm enabled patients who checked in on different days to interact and share
experiences. Patients were encouraged to socialize within the hospital and be connected even after the
treatment stay as well through re-unions. This led to a sense of giving & care in the patients. Happy
patients also reinforced confidence in new patients and the operation success helped the patient network
grow. All these policies led to excellent patient management.

Employee Management

The working hours for the doctors were very good and they had enough time for their family. They
were on call only one weeknight and one weekday in ten each and even here they were rarely called to the
hospital. The doctors also had a good learning experience as they trained under senior doctors. Further
they are very collaborative and share learnings from each other. The hospital shared profits with the
doctors in the form of bonuses. Their total compensation was also quite high (about 15% higher than
average income for surgeons in the state). The hospital followed policies which helped surgeons learn
from their mistakes and thus develop expertise in the Shouldice method. As a result of all these steps,
most doctors did not leave the hospital. For their administrative employees too, the hospital had a profitsharing plan. They were paid higher than that in comparable jobs. Further nobody was fired. They did
not have an organization chart as they did not want people to feel confined to specific jobs. This led to a
very collaborative working environment where secretaries were trained to do each others job and people
pitched in to help one another.

Expansion and Growth Options

The hospital does 7600 operations (Ops) a year. Theoretically, hospital can perform 297 Ops/2-weeks
or 148.5 Ops/week (see Appendix 64). Number of beds is the bottleneck currently (see Appendix 62 and
Appendix 61). The hospitals increasing demand leads to an increasing backlog of patients waiting to be
treated. Current backlog is 2400 and is increasing by 100 every 6 months. Thus there is a need and a
sound business reason to expand the current hospital for meeting the demand. Management is also
contemplating steps other than expansion for business growth and their proposals are underway. All these
options are discussed below.

Saturday Operations

By working on Saturdays also, the hospital could do 178 Ops/week (19.86% higher see Appendix
65). But even then, the number of beds is the bottleneck (see Appendix 62). Saturday operations do not
require additional financial investment except any extra compensation to surgeons and staff for Saturday.
However, senior surgeons are resisting this proposal and other staff might also join in since historically
the hospital has been strongly concerned about the work-life balance of all staff & surgeons. There may
be an increased dissatisfaction in the employees by this step and it can potentially have a negative effect
on service quality. This is detrimental to customer experience since intangible benefits have
complemented tangible forms of operational efficiency in building up the success story for Shouldice.
From Exhibit 3 in the case, we see that Personal Care (86%), Physicians care (72%), Nursing Care
(65%) have been rated important in contributing to the overall experience of patients at Shouldice. One
option to counter the problem is to hire dedicate new surgeons & staff for Saturday and maintain current
workload of existing staff.

Increasing the number of beds

By investing $4 million, 45 new beds can be added. With total beds now 134, Shouldice Hospital can
perform 200 Ops/week (34.68% higher see Appendix 66). It is important to note that now the bottleneck
shifts from number of beds to number of operating rooms & surgeons (see Appendix 62). Comparing
current setup with this new setup we see a decline in the bed utilization efficiency (95.26% in Appendix
64 to 85.29% in Appendix 66). Though we can combine increase in beds with Saturday operations to
achieve 240 Ops/week (61.61% higher see Appendix 67). This high increase in operations capacity
offsets the lower bed utilization.

Adding an additional operating room

After increasing the number of beds, we saw that number of operating rooms and surgeons became the
new bottleneck. To address this issue, we can develop an additional operating room. If we are able to
locate an additional room in the current building, then the process will be quick. Else, this step can be
only done on the new floor that will be constructed for increasing bed capacity. The cost to furnish an
operating room has been given as $30,000 and the cost of hiring new surgeons would be as appropriate
(average surgeon annual salary is given as $144,000). After adding 45 new beds and an additional
4

operating room, the hospital will be able to perform 223.5 Ops/week (50.5% higher see Appendix 68).
Now, if we combine all the process improvements listed above Saturday operations, 45 new beds, and
extra operating room we see that the hospital can achieve a staggering 268 Ops/week (see Appendix
69). This is a huge 80.47% capacity increase over the current existing setup.

Diversification

The major reasons for the hospital's success in Hernia's operation are the innovative procedure and low
rates. Given that, the success rate in other specialization would highly depend on how innovatively the
hospital handles it. For example, for eye surgery if the hospital employs the same model that other
hospitals follow, there might not be chances for differentiation in terms of price. But if the process is
efficiently designed as that for Hernia, other specialization would also prove to be successful. Thus this
proposal will require extensive research and is only viable in the long term.

Opening a new hospital in US

Approximately 10% patients come from USA and an estimated 1,000,000 Hernia operations are
performed in USA alone. This gives a great opportunity to build a new hospital in US. Patients who were
earlier reluctant to travel till Toronto will benefit because of the new establishment. Opening a new
hospital will require recruitment of surgeons, nurses and other staff. Some of the senior surgeons should
be moved to new location to train junior surgeons. But, the hospital industry in the US is one the most
heavily regulated. Also, for acquiring a new site in the US would require Shouldice to go through several
bureaucratic and regulatory arrangements not similar to the Canadian setup. This means difficulty in
replication of the current Canadian operations and loss of standardization.

Increased Advertisement

Hernia operations is of the one of the most common male operations as is evident from the estimated
1,000,000 operations performed in the US (2000). Even the present demands are not being met by
Shouldice in the existing relatively less aggressive word of mouth marketing strategy. Any efforts from
Shouldice to expand capacity has only briefly resulted in a downfall only to rise once again. At present
the 2400 backlogs are the highest ever. A more aggressive form of advertising venture like advertising
directly to patients or sending out brochures would only increase the current strong demand and aggravate
the problem of backlogs further. Thus, this is not an advisable step to take.

Implementing Changes

Appendix 610 summarizes the impact of all the proposed changes on the capacity of the hospital, the
bed and operating room utilization and also gives the cost implications for each. From this table it is clear
that the capacity can be best enhanced by combining a 50% increase in the number of beds with Saturday
operations and an additional operating room. This would involve a capital investment of ~$4.03Mn.
Further it would increase the salaries payable to the surgeons by $2100 per week.
In order to implement these changes, the hospital would first have to identify a new space this could
either be an additional floor in the existing building or a new building. A detailed analysis would have to
be carried out to understand the government regulations and how appropriate would another investment in
Toronto be. Alternatively, they could explore a site in the United States as discussed in section 4.5. So the
first major decision would be the selection of the site of the new operations facility.
The expansion plan needs to be carried out in an incremental manner to avoid disruption of current
operations. Further it would require a buy-in from the surgeons and other staff for the Saturday
operations. As discussed earlier, this could also be achieved by hiring additional surgeons. The location
for the new operating room would also have to be identified and the identified room would have to be
furnished to be usable as an operating room.
With active support from all the stakeholders, all the above steps are feasible and can help Shouldice
Hospital increase its capacity by 80.47%!

Appendices

Appendix 1
Day 1
Arrival

1-3Checkup
PM

20 Min.

Blood Test Explain Process 4:30 PMDinner/Tea 9PM

Check In

Day 2
Pre-op sedate 5:30AMDemerol 6:45AM

Surgery 7:30AM

Room Rest

Dinner/Tea 9PM

Day 3
Stich Loosened

Exercise

Dinner/Tea 9PM

Figure 1: Process Flow Diagram

Appendix 2

Capacity analysis:
Examination rooms: (6 rooms*3 hrs.*60min/hr.)/(20 min/examination) = 54 examinations/day
This gives 270 examinations/week with a 5-day week and 324 with a 6-day week
Beds: 148.5 operations/week in current state (for Appendix 4)
178 operations/week with Saturday operations (for Appendix 5)
Surgeons: 10 surgeons * 4 operations per surgeon per day = 40 operations/day
This gives 200 operations/week with a 5-day week and 240 with a 6-day week
Operating rooms: 5 rooms * 8 hrs. * 1 operation/hr. = 40 operations/day
This gives 200 operations/week with a 5-day week and 240 with a 6-day week

Appendix 3

Calculation of average price of a surgery at Shouldice Hospital:

Hospital Stay - $320/day * 4 days = $1280
Surgical Fee - $650
General Anesthesia - $300*0.2 = $60
Total price = 1280+650+60 = $1990

Appendix 4
Current Bed Capacity
Assumption: All procedures are conducted only on weekdays since it is a 5-day week. This means
that:
a. Patients are admitted from Monday to Friday
b. Patients who get admitted on Friday stay over the weekend and get operated on Monday
c. Patients who are operated on Thursday and Friday stay for the complete weekend
In the table below we refer to the following 3 stages:
Stage 1: Admission (also includes patients who stay over the weekend to get operated)
Stage 2: Operation
Stage 3: Recovery (also includes who stay over the weekend after getting operated)

We have only shown 2 weeks because week 3 would be same as week 1, week 4 would be same as
week 2 and so on. Also note that all numbers in the same color above represent the same set of patients
flowing through the process
Table 1: Bed Capacity (Current)

Week 1
Week 2
Mon Tue Wed Thu Fri Sat
Sun Mon Tue Wed Thu Fri Sat Sun
Admission 30
29 30 30 29
30 30 29 30 30
Stage 1
30
29 30 30 29
29
29
30 30 29 30 30 30
30
Stage 2
30
30 29 30 30
29 30 30 29 30
Stage 3
30 30 29 30 30+30 30+30 29 30 30 29 29+30 29+30
Discharge 29+30
30 30 29
30+30
29 30 30
Total**
60
89 89 89 89
89
89
59 89 89 89 89 89
89
Bed Utilization = 1187/(14*89) = 95.26 %; Total Ops in 14 days = 297
**Here total is the sum of the number of patients in stage 1, stage 2 and stage 3 (i.e. the total number
of patients in the hospital at a given day). The admission and discharge rows have been presented to
clearly show when the patients enter and when they leave from the system.

Appendix 5
Table 2: Bed Capacity (with Saturday operations)

Week 1
Week 2
Mon Tue Wed Thu Fri Sat Sun Mon Tue Wed Thu Fri Sat Sun
Admission
30
29 30 30 29 30
29 30 30 29 30 30
Stage 1
30
29 30 30 29 30
30
29 30 30 29 30 30
30
Stage 2
30
30 29 30 30 29
30 29 30 30 29 30
Stage 3
30 30 29 30 30 29+30 30 29 30 30 29 30+29
Discharge 30+29
30 30 29 30
29+30
30 29 30 30
Total
60
89 89 89 89 89
89
59 89 89 89 89 89
89
Bed Utilization = 1187/(14*89) = 95.26 %; Total Ops in 14 days = 356

Appendix 6
Table 3: Bed Capacity (With 50% Extra Capacity)

Week 1
Week 2
Mon Tue Wed Thu Fri Sat
Sun
Mon Tue Wed Thu Fri Sat
Sun
Admission
40
40 40 40 40
40
40 40 40 40
Stage 1
40
40 40 40 40
40
40
40
40 40 40 40
40
40
Stage 2
40
40 40 40 40
40
40 40 40 40
Stage 3
40 40 40 40 40+40 40+40
40 40 40 40 40+40 40+40
Discharge 40+40
40 40 40
40+40
40 40 40
Total
80 120 120 120 120 120
120
80 120 120 120 120 120
120
Bed Utilization = 1600/(14*134) = 85.29 %; Total ops in 14 days = 400
No of Beds = 134; Number of operations/day = 40 (5 Operating rooms X 8 hours/day)

Appendix 7
Table 4: Bed Capacity (With Saturday Operations and 50% extended capacity)

Mon

Week 1
Tue Wed Thu Fri Sat

Sun

Week 2
Mon Tue Wed Thu Fri Sat

Sun

Admission
40
40 40 40 40 40
40 40 40 40 40 40
Stage 1
40
40 40 40 40 40
40
40 40 40 40 40 40
40
Stage 2
40
40 40 40 40 40
40 40 40 40 40 40
Stage 3
40 40 40 40 40 40+40 40 40 40 40 40 40+40
Discharge 40+40
40 40 40 40
40+40
40 40 40 40
Total
80 120 120 120 120 120 120
80 120 120 120 120 120 120
Bed Utilization = 1600/(14*134) = 85.29 %; Total ops in 14 days = 480

Appendix 8
Number of beds = 134
Table 5: Bed Capacity (50% extended capacity and one more operating room)

Week 1
Week 2
Mon Tue Wed Thu Fri Sat
Sun Mon Tue Wed Thu Fri Sat Sun
Admission 45
44 45 45 44
45 45 44 45 45
Stage 1
45
44 45 45 44
44
44
45 45 44 45 45 45
45
Stage 2
45
45 44 45 45
44 45 45 44 45
Stage 3
45 45 44 45 45+45 45+45 44 45 45 44 44+45 44+45
Discharge 44+45
45 45 44
45+45
44 45 45
Total
90 134 134 134 134 134 134
89 134 134 134 134 134 134
Bed Utilization = 1787/(14*134) = 95.26 %; Total Ops in 14 days = 447

Appendix 9
Table 6: Bed Capacity (with Saturday operations, 50% more capacity and 1 more operating room)

Week 1
Week 2
Mon Tue Wed Thu Fri Sat Sun Mon Tue Wed Thu Fri Sat Sun
Admission
45
44 45 45 44 45
44 45 45 44 45 45
Stage 1
45
44 45 45 44 45
45
44 45 45 44 45 45
45
Stage 2
45
45 44 45 45 44
45 44 45 45 44 45
Stage 3
45 45 44 45 45 44+45 45 44 45 45 44 45+44
Discharge 45+44
45 45 44 45
44+45
45 44 45 45
Total
90 134 134 134 134 134 134
89 134 134 134 134 134 134
Bed Utilization = 1787/(14*134) = 95.26 %, Total Ops in 14 days = 536

10

Appendix 10
Yearly salary of 10 surgeons = $144,000; Per week salary of 1 surgeon = $300 (5 working days)
Table 7: Summary of Strategies
Strategy

Current Situation
With Sat Operation
With 50% Extra Capacity
With Sat Operation & 50% more Cap

Beds
Ops Room
Ops/week
Utilization
Utilization

95.26%
95.26%
85.26%
85.26%

148.5
178
200
240

74.25%
74.17%
100%
100%

Cost(investment +
surgeon charge)

$0+ $600/week
$4Mn+ $1500/week
$4Mn + $2100/week

With 50% more + 1 Operating room

95.26%

223.5

93.13%

$4.03Mn

With Sat Op, 50% more, 1 Op room

95.26%

268

93.06%

$4.03Mn+$2100/week