Article at a glance:

Hospitals get serious about operations

The average US hospital runs its operations in the red, suffers from overcrowding in critical areas, and can't expand without ratcheting up financial risk. To understand why such problems persist in health care, you must go back at least to the mid-1980s, when insurers still paid whatever fee hospitals demanded. Although much of US industry was applying modern logistics techniques, hospitals felt no competitive pressure to do so. That world has long since passed away. Hospitals are now being reimbursed much as commodity sellers are and, like them, will rise or fall largely on the strength of operational performance.

The take-away

Hospital CEOs must adapt the ideas used by manufacturing industries for decades. Stocks and flows, queuing theory, just-in-time processes—all the notions associated with the factory floor—are exactly what modern hospitals most sorely need.