(Cartoon by Jackson Graham/Cartoonstock) 

Companies as diverse as FedEx, Motel 6, and Southwest Airlines have found success by picking the right customers and focusing on a well-defined service. Now some hospitals are becoming customer-focused, specializing in a particular type of medicine or medical procedure.

“Over the last 10 years, there’s been almost a threefold increase in the number of specialty hospitals,” says Diwas Singh KC, an assistant professor of information systems and operations management at Emory University’s Goizueta Business School. Many such hospitals focus on cardiac care or orthopedics because they are profitable specialties. KC, along with Professor Christian Terwiesch of the University of Pennsylvania’s Wharton School, wanted to know whether specializing helps these hospitals to excel in treating patients—or if the patients themselves are simply easier to treat in the first place.

KC and Terwiesch analyzed data from more than 500,000 cardiac patients treated at California hospitals to examine the effect of specialization on quality of care. In their study, the researchers distinguished between three levels of focus: at the hospital level, at the department level, and at a procedural level.

“We found that there are benefits to focus at all levels of the organization,” KC says. For example, hospitals that specialized in cardiac care had better patient outcomes, as measured by shorter lengths of stay and reduced death rates. Furthermore, hospital departments that focused on patients needing coronary revascularization—treatments for clogged arteries—also got better results. And on an even more granular level, departments that specialized in a particular procedure for clearing those clogged arteries, such as bypass surgery or angioplasty, also showed better patient outcomes than departments without such a focus.

That was not particularly surprising, KC says. But he and Terwiesch also examined whether those improved results were due to “cherry-picking,” or attracting patients with lower risk factors to begin with. Once they accounted for that possibility, the benefits of focus at the hospital level disappeared, but improvements at the department and procedure level endured. That information could be useful to hospitals wanting to redesign their service delivery systems.

But specialization could also cause undesirable consequences. The way in which insurers reimburse hospitals for care rewards efficiency, so patients who require a shorter length of stay end up being more profitable for a specialty hospital. “If there are benefits to focus and specialization, we should encourage that to some extent,” KC says. “But if everyone wants to become very focused and ends up cherry-picking, what happens to the more severe patients?” Their only option might be a large teaching hospital that has the resources to care for them.

“You could have a hospital that specializes in treating these really severe cases as well,” KC says. “But given the current reimbursement scheme, that kind of specialization is not encouraged.” Changing that system could help hospitals stay profitable while giving their patients higher-quality care.

Diwas Singh KC & Christian Terwiesch, “The Effects of Focus on Performance: Evidence from California Hospitals,” Management Science, 57, 2011.

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