Hospital Management - A game of chess

Anupam Verma -

Would you like to manage a Hotel, or a Hospital? An entrepreneur who owned both the facilities asked this question to a very senior hospital management executive. The executive was a veteran in managing hospitals. He replied that he would volunteer a 25 per cent cut in his emolument for the option to manage a Hotel instead of Hospital, as it would give him the opportunity to pursue his passion for golf. But he would not opt for the offer, as managing hospital was continuously training him in mentally stimulating variations of chess. The analogy might be debatable, so can be the importance of management in different industries. But this definitely precipitates the complexities of management of Hospitals, some of which seem to defy the prevalent management theories.

Every hospital is a unique entity, in terms of objective and purpose, operational process, level and product offering, geographic and demographic positioning etc. Consequently, parameters of operations management differ in a wide range over the whole spectrum. In absence of uniformity, nuances that differentiate the healthcare delivery processes from a typical service industry, look all the more challenging. One such challenge is the management of materials in a hospital. Seemingly innocuous processes may become intricate cases for analyses and decision-making.

Although the materials procured and used in a hospital can be categorized into several categories i.e. capital, consumable, maintenance, and diagnostics etc., we shall take a case of pharmaceuticals to showcase the differentiation. The supply of pharmaceuticals in a hospital can either be outsourced, or be managed by an in-house pharmacy. The outsourcing solution seems a logical option for a large part of the industry. But the profitability offered by captive business opportunity in the latter case is tempting and can provide a comfortable cushion to absorb exigencies of wafer thin surplus potential in hospital operations.

But there is difference in the management of a retail medical store and an in-house pharmacy. While the choice of medicine brands sold in a retail outlet depends entirely on the choice of the consumer, the brands kept in the in-house pharmacy are influenced by many factors other than this. A few affecting factors would be (i) differential in efficacies of different brands, tested or perceived (ii) the effect of medicine cost on the total treatment cost of the patient (iii) the surplus which can be generated by different brands (iv) volume bargaining advantage offered by pharmaceutical companies (v) Prescription preference of brands by medical practitioners etc. These factors challenge the decision making capabilities of a pharmacy manager as he would know of the underlying conflicts related to patient care and rights, economic goals of the pharmacy and personal preferences of the sale drivers.

To highlight a case of conflict, a relevant example would be the decision to buy a brand based on the sale margins offered by the companies. Same generic salt of different pharmaceutical companies is available at price ranging from ‘x’ to ‘3x’. Considering the potencies of these different brands to be in acceptable range, an obvious decision would be to buy the brand with a price tag of ‘x’. But business manager would be tempted to buy the ‘3x’ brand as it would give him about three times margin than the ‘x’ brand. The volume of the sale is pre-decided and assured. So the absolute value of the surplus generated by the pharmacy would be enhanced. Also, the ‘3x’ brand would definitely belong to a more popular company with strong thrust in the marketplace and would thereby have undisputed acceptability. But, this decision would have an adverse impact on the total treatment cost of the patient, whereby the hospitals’ treatment price positioning in the market place would receive a dent. This decision can adversely impact the bottom line, if the product mix of the hospital consists of packaged treatment products for illnesses and procedures, where he total money to be paid by the patient is pre-decided.

At every step in managing a hospital, there are innumerable dilemmas like this one, challenging the decision-making skills of the management professionals. Most of these conflict situations, aggravated by multiple influencing factors are resolved by guiding principles reflecting broader goals and objectives of the organization. The solutions are different for different types of organization. This is perhaps the fact that has deprived this industry of parameterization and virtues of precedence. This is indeed Chess.

(The author is deputy director, administration, Hinduja Hospital, Mumbai. He may be contacted at anupam@hindujahospital.com)