Impact of network size and demand on cost performance for high- and low-quality healthcare service organizations

Abstract

Purpose Healthcare networks are becoming ubiquitous, yet it is unclear how hospitals with varying quality capabilities would fare by being affiliated with large healthcare networks. The purpose of this paper is to first consider the deductive configuration perspective and distinguish high and low quality hospitals by using clinical and experiential quality as two dimensions of quality capability. Next, it examines the impact of healthcare network size on operating costs of hospitals. Additionally, the paper investigates the interaction effect of hospital demand and healthcare network size on operating costs. Design/methodology/approach The paper uses a dataset that was created by combining five separate sources. Cluster analysis technique is used to classify hospitals into four groups – holistic quality leaders (high clinical and experiential quality capability), experiential quality focusers (low clinical quality capability and high experiential quality capability), clinical quality focusers (high clinical capability and low experiential quality capability), and quality laggards (low clinical and experiential quality capability). The authors test the research hypotheses by means of regression analyses after controlling for several contextual characteristics. Findings The results show that affiliation with large healthcare networks reduces operating costs for quality laggards, but increases these costs for experiential quality focusers and clinical quality focusers. The hypothesized positive relationship between healthcare network size and costs is not supported for holistic quality leaders. The authors find that clinical quality focusers and holistic quality leaders can complement higher utilization levels in their operations due to increased demand and healthcare network size to reduce their operating costs per day. Originality/value There has been increasing evidence suggesting that hospitals must carefully manage both clinical and experiential quality. By focusing on both clinical and experiential quality, unlike experiential quality focusers and clinical quality focusers, holistic quality leaders are not adversely affected by the size of their network. The results suggest that experiential quality focusers and clinical quality focusers should either embrace holistic quality management or restrict the size of their networks to maintain their quality level and to reduce coordination costs.