Shouldice Hospital Limited
1. How well is the hospital currently utilizing its beds?

Shouldice Hospital is currently utilizing its beds quite well. Under the Shouldice method, they are operating with 90 beds, admitting 30 patients per day, and not accepting any new patients on Saturdays. Each patient admitted generally stays in the hospital for 3 days and is discharged on the fourth morning. By examining Exhibit 4.7, it is apparent that the hospital’s capacity utilization is roughly 71.43%. On Mondays and Fridays, 60 of the 90 beds are utilized (66%). Tuesdays through Thursdays, all 90 beds are being used (100%), while 30 of the beds are being used on Saturdays and Sundays (33%). If they were using all 90 beds, 7 days a week, …show more content…
Therefore, it can be concluded that, at maximum, Shouldice Hospital can operate on 40 patients per day. Since they can only operate on 40 patients per day, the hospital would not be able to perform 45 operations per day under the current practices.

4. Due to all the uncertainties in government health legislation, Shouldice would like to justify an expansion within a five-year time period.

In order to justify an expansion within a five-year time period, Shouldice Hospital should look no further than their current capacity. By adding on to their current facilities or perhaps building a new clinic, Shouldice would be able to take on additional patients. To make up for this cost, the hospital could start performing Saturday operations. Although the utilization rate would increase, the hospital could still provide a high quality of service that patients have come to expect from Shouldice while also leveraging their existing strengths.

Nonetheless, they could still justify an expansion under the current method of operating 5 days a week if they simply expand by 30 beds. In doing so, the hospital would be able to perform 120 operations per week. The initial investment for this expansion would be $3 million (30 beds x $100,000 per bed = $3 mil). On average, the rate charged is $1,300 per operation whereas the surgeons are paid a flat $600 per operation. Therefore, the net gain per operation would