Designing for Economies of Scale vs. Economies of Focus in Hospital Departments

Subject/Research problem Hospitals traditionally segregated resources into centralized functional departments such as diagnostic departments, ambulatory care centres, and nursing wards. In recent years this organizational model has been challenged by the idea that higher quality of care and efficiency in service delivery can be achieved when services are organized around patient groups. Examples are specialized clinics for breast cancer patients and clinical pathways for diabetes patients. Hospitals are grappling more and more with the question, should we become more centralized to achieve economies of scale or more decentralized to achieve economies of focus. In this paper service and patient group characteristics are examined to determine conditions where a centralized model is more efficient and conversely where a decentralized model is more efficient. Research Question When organizing hospital capacity what service and patient group characteristics indicate that efficiency can be gained through economies of scale vs. economies of focus? Approach Using quantitative models from the Queueing Theory and Simulation disciplines the performance of centralized and decentralized hospital clinics are compared. This is done for a variety of services and patient groups. Result The study results in a model measuring the tradeoffs between economies of scale and economies of focus. From this model “rules of thumb” for managers are derived. Application The general results support strategic planning for a new facility at the Netherlands Cancer Institute Antoni van Leeuwenhoek Hospital. A model developed during this study is also applied in the Chemotherapy Department of the same hospital.