BACHELOR THESIS

CAPACITY PLANNING IN HOSPITALS

Supervisor: Dr. M.A.H. Groen

ANR: 716344
Name: Thomas van Steenis
E-mail: Thomasvansteenis@gmail.com
Date: June 10th, 2010
Topic: Logistics and Operations Management in Healthcare
Study Program: Business Studies
Number of words: 7483
PREFACE

Dear reader,

In front of you lies my bachelor thesis concerning Logistics and Operations Management in Health-
care, more specifically about capacity planning in hospitals. This bachelor thesis is the rounding off
of my study Business Studies and I believe that it is a worthy closure.

During the process of writing this thesis I received valuable contributions and comments of my su-
pervisor Dr. M.A.H. Groen and I would sincerely like to thank her for all her time and effort.

I hope you will enjoy reading this thesis,

Yours faithfully,

Thomas van Steenis

Bachelor Thesis – Capacity planning in hospitals Page 2 of 34

TABLE OF CONTENTS

Preface .................................................................................................................................................................... 2
Table of contents .................................................................................................................................................... 3
Management summary .......................................................................................................................................... 5
Chapter 1. Introduction .......................................................................................................................................... 6
1.1 Problem Indication ................................................................................................................................ 6
1.2 Problem statement ............................................................................................................................... 6
1.3 Research Questions ............................................................................................................................... 7
1.4 Relevance .............................................................................................................................................. 7
1.5 Research Design and data collection .................................................................................................... 7
1.6 Overview of the Rest of the Chapters ................................................................................................... 8
Chapter 2. Overview of the conditions influencing the demand of beds in a hospital .......................................... 9
2.1 Population size .................................................................................................................................... 10
2.2 Population characteristics ................................................................................................................... 10
2.3 Society standards ................................................................................................................................ 10
2.4 Hospital characteristics ....................................................................................................................... 11
2.5 Alternatives ......................................................................................................................................... 11
2.6 Patient length of stay .......................................................................................................................... 11
2.7 Future development of demand ......................................................................................................... 11
2.8 Chapter summary ................................................................................................................................ 12
Chapter 3. Identification of the context and conditions influencing the decision process regarding the capacity
of beds in a hospital. ............................................................................................................................................. 13
3.1 Costs .................................................................................................................................................... 13
3.2 Quality ................................................................................................................................................. 14
3.3 Other practices to modify the effect on the two variables ................................................................. 15
3.4 Other conditions influencing the decision process ............................................................................. 17
3.5 Chapter summary ................................................................................................................................ 17
Chapter 4. An overview of the available decision methods regarding the capacity of beds in a hospital. .......... 18
4.1 Methods to decide upon capacity ....................................................................................................... 18
4.2 Overview of the advantages and disadvantages of the discussed models ......................................... 23
4.3 Chapter summary ................................................................................................................................ 24
Chapter 5. Analysis of the Dutch context. ............................................................................................................ 25
5.1 In the past ........................................................................................................................................... 25
5.2 Current situation ................................................................................................................................. 25
5.3 Chapter summary ................................................................................................................................ 27
Chapter 6. Conclusion ........................................................................................................................................... 28
6.1 Discussion and conclusions ................................................................................................................. 28
6.2 Recommendations for future research ............................................................................................... 31
6.3 Limitations ........................................................................................................................................... 31

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Chapter 7. Reference List ..................................................................................................................................... 32
7.1 Scientific Literature ............................................................................................................................. 32
7.2 Other References ................................................................................................................................ 34

Bachelor Thesis – Capacity planning in hospitals Page 4 of 34

MANAGEMENT SUMMARY

In this thesis the question what methods are available to Dutch hospitals to plan the capacity of beds
in health care institutions in an efficient way will be answered. To answer this question a literature
review is conducted.

First of all the conditions influencing the demand for a certain hospital were identified. The following
conditions are identified: population size; population characteristic; society standards; hospital char-
acteristics; alternatives; patient length of stay & future development of demand.
Following, the factors influencing the decision process were analysed. The decision concerning the
optimal number of beds can be seen as a trade-off between quality and costs. Besides, the decision
is influenced by other practices applied to influence the effect of the chosen number of beds on both
the quality as the costs. Furthermore, the decision-authority and measurability influence the deci-
sion as well.

Having identified both the factors influencing the demand as the decision process, different methods
to calculate the optimal number of beds were discussed. Both ratio methods as simulation models
were analysed and compared with each other.
Comparing the simulation models and the ratio models we can conclude that the ratio models have
the advantage of being easy to use as they do not need a lot of detailed information. The advantage
of the simulation model is that the number of beds are better estimated. However a lot of detailed
data is necessary to use the simulation models, which makes them harder to apply.

To conclude whether the international models discussed before can also be used in the Dutch con-
text, the Dutch healthcare context is analysed in chapter 5. The extensive use of DBCs in the current
system is special for the Dutch context. The DBCs can be used while planning capacity.
The usage of DBCs makes it very easy to apply ratio methods as the DBCs can be used as averages in
the ratio methods. However ratio methods might miss the detailed analysis of the factors influencing
demand as discussed in chapter 2. This might either lead to an underestimation of beds, and hence
a fall in quality or an overestimation of beds, with high costs as a consequence.
To solve this problem the usage of simulation models might help, however since much detailed data
is needed to use these models, it might not be easy to apply the simulation models. Considering the
Dutch context it seems that the ideal model would be a simulation model based upon the DBCs. Fu-
ture research could be conducted to develop such a model.

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CHAPTER 1. INTRODUCTION

1.1 PROBLEM INDICATION

In the beginning of January 2010 a short newspaper article in “Dagblad de Limburger” reports that
all the intensive care beds in the University Hospital of Aken are occupied. There is no place for new
patients anymore. ("Klinikum: geen plek meer op intensive care," 2010)
A couple of months earlier the newspaper “De Twentse Courant Tubantia” reports about a new
planning method being used in the ZGT Hospital Hengelo. With tactical planning and analysing the
demand, they are able to plan the number of beds in their hospital a lot better. Waiting times have
decreased from months till days. ("Wachtlijsten ZGT ineens stuk korter," 2009)
Those two examples give an idea about the importance of the planning of the number of beds in a
hospital. Besides this, the focus of the health care industry is changed more and more to being cost
efficient and market-driven. (Gaynor & Haas-Wilson, 1999) Every bed which is not occupied will de-
crease this efficiency.
The question which now arises is how to decide in a proper way what is the number of beds a hospi-
tal should have available.
Conducting a database search on the topic shows that thoroughgoing research on this topic has
been done before. However most of these studies either focus on the factors involved in the deci-
sion regarding the number of beds (Hanlon et al. (1998); Oliveira (2004); Vissers et al. (2001)) or it
are case studies in which a certain model is applied to a certain hospital. (Kim et al. (1999); Nguyen
et al. (2005); Utley et al. (2003)) All this makes the knowledge about this topic fairly scattered.
The aim of this paper is to give a thorough critical overview of the knowledge which is available on
this topic. It should give the reader a good impression about the different models to decide upon the
number of beds a health care institution should have. As every model has its own pro’s and con’s, it
should also give an idea about the usefulness of the available model in different situations. Further-
more it is analysed whether the models are applicable in The Netherlands.

1.2 PROBLEM STATEMENT

What methods are available to Dutch hospitals to plan the capacity of beds in hospitals in an effi-
cient way?

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1.3 RESEARCH QUESTIONS

1. What are the conditions influencing the demand of beds in a hospital?

2. Which conditions are influencing the decision process regarding the capacity of beds in a
hospital?
3. What are the different models available to decide about the capacity of beds in international
literature?
4. What are the advantages and disadvantages of the different models?
5. To what extent can these international models be implemented in the Netherlands?

1.4 RELEVANCE

ACADEMIC PERSPECTIVE:
From an academic perspective the relevance of this thesis is to give a critical overview of the differ-
ent models available to plan the capacity of beds in a health care institution. As stated before the
available knowledge about the planning of the capacity of beds is available but scattered. The pur-
pose of this thesis is to give a critical overview of the available methods and to give an insight in the
usefulness of the different methods in different situations.

MANAGERIAL PERSPECTIVE
This thesis is relevant from a managerial perspective since it gives a critical overview from which
managers responsible for deciding about the capacity of beds can choose the model best suited for
their case. This thesis will help them in choosing the best method to decide upon the desired capac-
ity of beds.

1.5 RESEARCH DESIGN AND DATA COLLECTION

To solve the problem stated and answer the research questions proposed a literature review will be
used. The main concepts which will be investigated are the different approaches available to decide
upon the desired capacity of beds in a health care institution. As consequences of actions in these
institutions are of a different level than in normal companies, specialised research regarding health
care institutions will be reviewed to give this overview.

The technique to find the appropriate publications to use as secondary data, will first be a thorough
search in databases with papers from respected journals. Databases like Web of Science and
ABI/Inform will be used.
Bachelor Thesis – Capacity planning in hospitals Page 7 of 34
The following search terms are used when searching in these databases:
• Hospital capacity planning
• Hospital demand
• Demand management
• Capacity planning

To decide about the usefulness of the papers found, a focus will be put on the number of citations a
publication has and the impact factor of the journal in which it was published.
After the first appropriate literature is found through database searches, special attention will be
given to the reference lists of the used literature, as in these lists there often are very useful publica-
tions. Furthermore, a forward search to papers quoting the firstly found literature is conducted.
Once again, the articles found through these forward and backward searches are critically selected
by focussing on the number of citations they have and the journals they are published in.

Besides the international literature to be found in the databases named above, Dutch policy papers
and reports will be used to assess in what extent the international models can be used in the Dutch
context.

1.6 OVERVIEW OF THE REST OF THE CHAPTERS

Chapter 2: Overview of the conditions influencing the demand of beds in a hospital.

Chapter 3: Identification of the context and conditions influencing the decision process regarding
the capacity of beds in a hopsital.
Chapter 4: An overview of the available decision methods regarding the capacity of beds in a health
care institution.
Chapter 5: Analysis of the Dutch context.
Chapter 6: Conclusion
Chapter 7: Reference List

Bachelor Thesis – Capacity planning in hospitals Page 8 of 34

CHAPTER 2. OVERVIEW OF THE CONDITIONS INFLUENCING THE DEMAND OF BEDS IN
A HOSPITAL

To be able to determine the amount of beds needed in a hospital it is firstly important to know what
conditions influence the demand of beds in a hospital. In this chapter these conditions are identified.

According to Harper & Shahani (2002) it is necessary that “detailed hospital bed capacity models
should incorporate monthly, daily and hourly demand profiles and meaningful statistical distribu-
tions that capture the inherent variability in patient lengths of stay”.
In literature multiple models have been developed to determine the demand for hospital care using
different approaches. This part of the paper will not elaborate on the different methods they used to
calculate the exact demand for a hospital, but will focus on giving an overview of the different condi-
tion previous research has identified as influencing the demand of beds in a hospital
These conditions can be categorised in the following seven classifications:

Classification: Author: Research conducted

in:

Population size
Oliveira (2004); Vissers, van der Bij and Portugal; The
Kusters (2001) Netherlands

Population characteristic Hanlon et al. (1998); Oliveira (2004); Scotland; Portugal;

Vissers et al. (2001) The Netherlands

Society standards Vissers et al. (2001) The Netherlands

Hospital characteristics Oliveira (2004) Portugal

Alternatives Oliveira (2004) Portugal

Patient length of stay Harper & Shanani (2002); Vasilakis & United Kingdom
Marshall (2005)

Future development of demand Vissers et al. (2001); Blokstra et al. (2007) The Netherlands

Bachelor Thesis – Capacity planning in hospitals Page 9 of 34

2.1 POPULATION SIZE

Vissers et al. (2001) define the size of the population in the catchment area as an important deter-
minant of the demand for a hospital. The catchment area can be understood as the area which a
hospital serves. In the model of Vissers et al. (2001) the size of the catchment area is influenced by
the marketing policy of the hospital, the expansion of towns and villages and the actual intake of
patients.
Oliveira (2004) includes in the determination of the number of people in the catchment area the dis-
tance of a person’s home to the hospital. This variable will negatively influence the demand. The fur-
ther one lives from a hospital, the lower the chance he will come to the hospital, as chances increase
that one will either go to an alternative as will be explained in section 2.5, or one will not demand
health care at all for non-urgent problems.

2.2 POPULATION CHARACTERISTICS

Demographic factors influence the demand for hospitals both Oliveira (2004) and Vissers et al.
(2001) conclude. Especially the proportion of elderly patients is of influence on the demand for hos-
pitals. Earlier research of Hanlon et al. (1998) supports this as well, as their “results show the large
and rising rates of hospital utilization and the changing patterns of hospital utilization among older
people.”

2.3 SOCIETY STANDARDS

Over time the health sector is being able to cure more and more diseases. While this can be seen as
a great improvement of the health sector it also increases the standards in society and the expecta-
tions of patients. The rising standards over time within a society increase the demand for health care
according to Vissers et al. (2001). The higher the standards in society and the expectations of people
regarding health care, the more people want their health to stay optimal and feel a need for health
care.
Increasing this effect, is according to Vissers et al. (2001) that as technological developments are
made and society’s standards increase, the lower the threshold is for referrals by general practitio-
ners to specialised medical care in hospitals.

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2.4 HOSPITAL CHARACTERISTICS

The specific characteristics of a hospital also play a role for determining the demand for a hospital
according to Oliveira (2004). These are characteristics like the size of the hospital and the (per-
ceived) available practices and specialisations in the hospital.

2.5 ALTERNATIVES

An important condition according to Oliveira (2004) to calculate the demand for a specific hospital is
the number of alternatives available for potential patients to go to. One could think about other
hospitals in the same area, private institutions a patient could go to and general practitioners who
can solve small health problems on their own.

2.6 PATIENT LENGTH OF ST AY

The number of beds needed for a certain amount of people demanding healthcare also depends on
the number of days a patient has to stay at the hospital. “Different patient types have different
length of stay distributions”. (Harper & Shanani, 2002) According to Vasilakis & Marshall (2005) pa-
tient length of stay is commonly used for predicting and managing hospital demand.
There are different ways to calculate the expected number of days a patient will stay at the hospital,
but it is most common to use simple averages for different patient types. (Vasilakis & Marshall,
2005)

2.7 FUTURE DEVELOPMENT OF DEMAND

The above proposed characteristics are all used to calculate demand for the current situation. How-
ever to make good forecasts one should not forget that the demand does not only fluctuate over
time, but might also change structurally. Hence it is important to calculate the expected develop-
ment of demand in the future. (Vissers et al., 2001) (Blokstra et al., 2007)
The future development of demand can be calculated in different ways. Blokstra et al. (2007) explain
two ways of making demographic projection. Vissers et al. (2001) add a third epidemiological way to
calculating the future development of demand.

ROUGH DEMOGRAPHIC PROJECTION

Blokstra et al. (2007) suggest that the simplest method to project the demand for health care is by
projecting it using a simple demographic projection without taking the development of diseases into
account. The demand is calculated using the current prevalence and taking into account the devel-

Bachelor Thesis – Capacity planning in hospitals Page 11 of 34

opment of the society in terms of growth and aging. “Prevalence indicates the total number of pa-
tients with the condition requiring treatment at a certain point of time.” (Vissers et al. 2001)

DEMOGRAPHIC PROJECTION INCLUDING DEVELOPMENT OF PREVALENCE

The second method Blokstra et al. (2007) suggest is making a demographic projection including the
development of prevalence in the last years. Since developments in health care have been made in
the last years in the prevention of certain diseases and on the other side certain diseases will occur
more due to a change in lifestyle, this should give a more realistic projection than the earlier pro-
posed rough demographic projection. This way the development of diseases in society can be in-
cluded in the projection.

EPIDEMIOLOGICAL
In the epidemiological method besides the prevalence also the incidence is of importance. “Inci-
dence is the number of new patients with the condition and requiring treatment in a certain point of
time.” (Vissers et al. 2001)
The total demand can be calculated by taking the prevalence and adding the incidence to it. The de-
velopment of the incidence can be modelled by extrapolating the development of the incidence in
the past years “and taking into account the development in preventing risk factors of diseases.”
(Blokstra et al., 2007) Risk factors are for example unhealthy life styles and smoking.

2.8 CHAPTER SUMMARY

Seven conditions are identified which influence the demand for a certain hospital. These conditions
are population size; population characteristic; society standards; hospital characteristics; alterna-
tives; patient length of stay & future development of demand. However, none of the cited studies
combine all of these conditions.

Bachelor Thesis – Capacity planning in hospitals Page 12 of 34

CHAPTER 3. IDENTIFICATION OF THE CONTEXT AND CONDITIONS INFLUENCING THE
DECISION PROCESS REGARDING THE CAPACITY OF BEDS IN A HOSPITAL.

In this chapter the most important conditions influencing the decision regarding the optimal number
of beds are identified.

When there are not enough beds in a hospital to meet demand the situation could occur in which a
patient cannot be treated. According to Jack & Powers (2004) the “inability to meet demand has
more serious consequences than it does in other services such as restaurants.”
The serious consequences it has when one is not able to meet demand, makes the decision process
regarding the capacity of beds different from capacity decisions in other organisations.

Nguyen et al. (2005) explain the decision of the capacity of beds as a decision between the “number
of patients transferred because of a full department and the number of unoccupied beds.” Unoccu-
pied beds could be seen as a negative situation from a cost perspective, while having to transfer or
refuse patients because of a full department could be seen as a negative situation from a quality
perspective. Hence the decision about the number of beds in a hospital can ultimately be seen as a
choice between costs and quality.
Especially considering the rising healthcare costs, it is more important for hospitals to pay attention
to the efficiency of capacity planning, while maintaining and improving their quality level. (Kim et al.,
1999). Li & Benton (2003) once more stress the importance of effective capacity planning for both
the cost and quality aspects: “In general, significant cost reductions and quality improvements ap-
pear to be possible through effective facility and equipment resource management.” The ability of
managing capacity is an important characteristic to become a successful player in the health sector.
(Li & Benton, 2003)

3.1 COSTS

Gaynor & Anderson (1995) showed us that the costs of having empty beds are very high. ”Increasing
the occupancy rate from the 1992 level of 65 percent to 76 percent reduces costs for the
average hospital by almost $2.2 million, or 9.5 percent of total costs.” (Gaynor & Anderson,
1995). The average occupancy rate in the United States in the period 1979-1989 was about 70%.
The rate declined in those ten years from 73% to 66%. (Keeler & Ying, 1996)

More recent research of Li & Benton (2003) support this by significantly proving that the cost per-
formance of hospitals is immediately affected by the decisions made regarding hospital beds. The

Bachelor Thesis – Capacity planning in hospitals Page 13 of 34

lower the number of beds one chooses to place, the better the utilization of available capacity is and
the lower the costs are. The statistical analysis of Keeler & Ying (1996) also supports this conclusion.

3.2 QUALITY

Empirical research of Li & Benton (2003) has shown that “hospital equipment decisions have an ef-
fect on quality performance.”
The available - or not available - number of beds influences the quality of hospitals in several ways.
According to Li & Benton (2003) the hospital equipment decisions have effect on the quality which
can be divided in two quality categories: clinical quality and customer satisfaction. Nguyen et al.
(2005) add the accessibility aspect.

3.2.1 CLINICAL QUALITY

In this category Li & Benton (2003) classify the quality aspects: “appropriate equipment, timely
treatment, adequate amount of services and meeting acceptable standards of industry’s practices.”
Nguyen et al. (2005) add the aspect of security to this which can be explained by the number of pa-
tients who have to be “transferred to another department for the sole reason that no beds are
available.”

3.2.2 ACCESSIBILITY
Accessibility is the availability of one or more beds for unscheduled new patients. (Nguyen et al.
2005)
If there are no beds available for new patients, the admittance of these patients will be delayed or
they will be placed in less appropriate places. This will influence the quality of the hospital nega-
tively. Although the exact impact on the patient is not easily measured, the adverse effects of delays
are proven. (Green & Nguyen, 2001)
The number of beds which needs to be available for unscheduled admissions of new patients is de-
pendent on the specific hospital and the specific department. (Nguyen et al., 2005)

A separation can also be made upon the type of admissions. Green & Nguyen (2001) identify three
types of admissions: emergent, urgent and elective. Especially for emergent and urgent patients the
adverse consequences of having no beds available are high. “Emergency patients arrive at random,
often in quick succession, and must be admitted with a minimum of delay. The build up of 'emer-
gency queues' and the need to transfer patients to other hospitals is highly undesirable.” (Ridge,
Jones, Nielsen & Shahani, 1998) According to Green & Nguyen (2001) half of the patients arriving at
a hospital are urgent patients, “meaning they must be admitted within 24 hours.”
Bachelor Thesis – Capacity planning in hospitals Page 14 of 34
3.2.3 PATIENT SATISFACTION
As previously mentioned the research of Li & Benton (2003) identifies patient satisfaction as one of
the aspects of the hospital quality aspect. Green & Nguyen (2001) agree on this and explored the
way in which delays in admittance influence patient satisfaction. They found out that, as the health
care sector becomes more and more competitive, “delays will likely become more important in con-
sumers' evaluation of hospitals.” As previously mentioned delays in admittance can occur when
there are not enough beds available to admit unscheduled patients.
Li et al. (2002) describe the health care sector as a patient-oriented service sector in which interac-
tion with customers should take place all the time. Hence responding to patient requests and com-
plaints is also vital for enhancing patient satisfaction. (Li & Benton, 2003) The number of beds can be
a constraint in being able to respond to patient requests.

3.3 OTHER PRACTICES TO MODIFY THE EFFECT ON THE TWO VARIABLES

Vissers et al (2001) identify different other practices a hospital could choose to modify the effect of
the capacity chosen on both the quality and the costs. Whether or not a hospital decides to apply
these practices influences the number of beds which is acceptable. Especially demand management
is identified as an important modifier of the effect on the two variables. (Kim et al., 1999)(Jack &
Powers, 2004)(Li & Benton, 2003)(Li et al., 2002)

DEMAND MANAGEMENT
“Demand management involves guidelines for controlling demand and managing the flow of pa-
tients through the service system.”(Li et al., 2002) Demand management should help organisations
to protect themselves against demand uncertainty. (Jack & Powers, 2004)
According to Li & Benton (2003), “demand management not only contributes to hospital cost per-
formance, but also helps improve customer satisfaction” Li & Benton (2003) suggest the following
demand management measures:
• “Pre-admission review for statistical procedures”
• “Length of stay estimation”
• “Patient classification consideration”

Jack & Powers (2004) have identified four theoretical approaches for hospitals to manage their de-
mand using a volume flexible framework. These four approaches are:

Bachelor Thesis – Capacity planning in hospitals Page 15 of 34

1. Shielding;
Shielding is “a strategy designed to shield the organisation from the negative effects of demand un-
certainty.” (Jack & Powers, 2004)
2. Absorbing
When using an absorbing strategy organisations can use their “internal buffers to achieve the de-
sired level of flexibility.” (Jack & Powers, 2004)
3. Containing
A containing strategy “allows the organisation to leverage its workforce, technology and internal
planning and control systems to achieve the desired level of performance” (Jack & Powers, 2004)
4. Mitigating
“A mitigating strategy enables the organisation to leverage both internal and external sources of
volume flexibility” (Jack & Powers, 2004)

Typical techniques (Jack & Powers, Suitable for organisations for which: (Jack &
2004) Powers, 2004)
Shielding  Pricing  Demand uncertainty is high
 Managed care control  Ability to respond flexible to fluctuation
in demand is low.
Absorbing  Using time buffers  Demand uncertainty is low
 Using slack capacity buffers  Ability to respond flexible to fluctuation
in demand is low.
Containing  Flexible workforce policies  Demand uncertainty is low
 Improving the efficiency of proc-  Ability to respond flexible to fluctuation
esses in demand is high.
 Usage of information technology
Mitigating  Restructuring  Demand uncertainty is high
 Risk pooling  Ability to respond flexible to fluctuation
 Outsourcing and strategic alliances in demand is high.
Considering the degree of uncertainty of demand and the desired ability to respond flexible to this
fluctuation a hospital can choose to manage its demand using one of these four strategies. Jack &
Powers (2004) suggest that for different specialisations in hospitals it might be wise to choose dif-
ferent strategies.

Bachelor Thesis – Capacity planning in hospitals Page 16 of 34

When applying demand management a hospital could use the framework Jack & Powers (2004) sug-
gest, however it should be taken into account that this framework has not been empirically tested
and hence further research might be necessary before applying this framework practically.

3.4 OTHER CONDITIONS INFLUENCING THE DECISION PROCESS

Besides the trade-off decision between these costs and quality and the ability to modify the effects
of those, the decision process itself is also influenced by different conditions.

DECISION AUTHORITY
The authority to make capacity decisions varies from country to country. The level on which what
decisions are made, may influence the models applicable to make a decision and the decisions made
themselves. (Vissers et al., 2001)
In chapter 5 the specific decision authority in The Netherlands will further be discussed.

MEASURABILITY
The decisions regarding bed capacity are long-term decisions. The impact of the made decision is not
measurable in the short run. (Li & Benton, 2003). This makes the importance of making the right de-
cision the first time higher, as one cannot easily adapt it on the short-term.

3.5 CHAPTER SUMMARY

The decision concerning the optimal number of beds can be seen as a trade-off between quality and
costs. Besides, the decision is influenced by other practices applied to influence the effect of the
chosen number of beds on both the quality as the costs. Furthermore, the decision-authority and
measurability influence the decision as well.

Bachelor Thesis – Capacity planning in hospitals Page 17 of 34

CHAPTER 4. AN OVERVIEW OF THE AVAILABLE DECISION METHODS REGARDING THE
CAPACITY OF BEDS IN A HOSPITAL.

In this chapter different methods are discussed which are available in literature to make a decision
regarding the optimal number of beds in a hospital. A distinction is made between simple calcula-
tions based upon averages and models which use complex simulations to obtain the ideal number of
beds. The way the model functions is discussed and furthermore the advantages and disadvantages
of each model are described.

4.1 METHODS TO DECIDE UPON CAPACITY

SIMPLE CALCULATIONS
Ratio method on a local hospital level
Many hospitals use basic averages to allocate the beds and to forecast the number of beds required.
(Harper & Shahani, 2002) Parameters like average length of stay are used in a simple calculation to
make a forecast of the number of beds needed.

The number of beds (N) is calculated for example using the average length of stay (LoS) using the
following formula:
𝐿𝑜𝑆*𝑛𝑢𝑚𝑏𝑒𝑟𝑜𝑓𝑝𝑎𝑡𝑖𝑒𝑛𝑡𝑠
“𝑁 = 𝑛𝑢𝑚𝑏𝑒𝑟𝑜𝑓𝑑𝑎𝑦𝑠
“ (Nguyen et al., 2005)

Advantages
• Simple calculation makes it easy to use (Nguyen et al., 2005)
• Not much detailed data needed

Disadvantages
• “Does not take into account fluctuation of requested admissions over time” (Nguyen et al.,
2005)
• The usage of average length of stay numbers, , might not “represent the underlying patient
population correctly.” (Vasilakis & Marshall, 2005)
▪ Number of beds needed is usually underestimated. (Harper & Shahani, 2002)
Harper & Shahani (2002), explain that this happens because the calculations based upon LoS
averages miss important factors like:

Bachelor Thesis – Capacity planning in hospitals Page 18 of 34

 - “Emergency patients arrive randomly and must be admitted with minimum delay and
priority.”
- “Emergency demand may be dependent upon day of the week and month of the year”
- Furthermore, Vasilakis & Marshall (2005) explain that this underestimation occurs be-
cause when using average length of stay numbers, it is not taken into account correctly
that “while almost half of the patients are discharged within the first week, the majority
of the beds (almost 90%) are constantly occupied by patients who stay for more than a
week.”

Ratio method on a national level

Another way to decide upon the number of beds available per hospital is from a national level. The
number of beds available per hospital is decided upon using a simple calculation. The hospital itself
only has to decide upon the number of beds allocated to each department. (Vissers et al., 2001). This
decision can be made using one of the other methods.

The number of beds to be allocated to a hospital can, according to Nguyen et al. (2005), be calcu-
lated from a national level based upon average length of stay using the following formula:

𝑖 1 𝑁𝑎𝑡𝑖𝑜𝑛𝑎𝑙𝐷𝑅𝐺𝑖𝐿𝑜𝑆
“𝑁 = 𝑛𝑢𝑚𝑏𝑒𝑟𝑜𝑓𝑑𝑎𝑦𝑠 “

The upper part of the division in the formula is the sum of the average length of stays taken from the
national database for every specialization which is available in the hospital. (Nguyen et al., 2005)

Advantages
• Simple calculation makes it easy to use (Nguyen et al., 2005)
• Not much detailed data needed

Disadvantages
• “Does not take into account fluctuation of requested admissions over time” (Nguyen et al.,
2005)
• Number of beds needed usually overestimated, as Nguyen et al. (2005) show in their
empirical research. (Nguyen et al., 2005)

Bachelor Thesis – Capacity planning in hospitals Page 19 of 34

SIMULATION MODELS
Besides the simple ratio methods based upon averages like the average length of stay, there are also
several more complex simulation models proposed in literature. The following section gives an over-
view of the most important simulation models available.

Flow model Harper & Shahani (2002):

The model Harper & Shahani (2002) propose is based upon simulating the flow of patients through
the process of admitting and discharging.
The flow Harper & Shahani (2002) use in their model can be described as follows:

Data needed:
In this simulation detailed data from the hospitals patient management system is used.

Bachelor Thesis – Capacity planning in hospitals Page 20 of 34

Choices
The user of the model can choose upon the following parameters before running the model:
• Number of beds for each department
• Maximum waiting time limit
• Number of beds only available for emergency patients

Results
The model presents the result of the parameters chosen with the following indicators:
• Bed occupancy
• Refusal rate

Using this model one can decide upon the ideal parameters for planning the number of beds
considering the desired bed occupancy and the accepted refusal rate.

Advantages
 Includes detailed data in calculation instead of the usage of averages.
 Captures the variability in the length of stay of patients. (Harper & Shahani, 2002)

Disadvantages
 A lot of detailed data is necessary.
 The model does not give any guidance in deciding about the targeted bed occupancy and refusal
rate.

Decision model Nguyen et al. (2005):

Nguyen et al. (2005) propose “an intuitive decision-method based on the three criteria”:
1. Security
2. Accessibility
3. Productivity

This model tries to obtain the optimal number of beds for each department based upon obtaining
the maximum average value for those three parameters, while obtaining a minimal standard
deviation.

Data needed

Bachelor Thesis – Capacity planning in hospitals Page 21 of 34

For each day and each department:
• “Number of patients in department
• Number of patients transferred due to lack of space
• Number of unsatisfied admission requests.
• Number of requested admissions” (Nguyen et al., 2005)

Choices
• Maximum number of beds which may be unemployed (Productivity)
• Minimum number of beds which always needs to be available for unscheduled admission
(Accessibility)

Results
The model gives the optimal number of beds for the period simulated in which the average value for
security, accessibility and productivity is highest.

Advantages
 “No hypotheses concerning the admission or target bed occupancy are needed.” (Nguyen et al.
2005)
 Includes detailed data in calculation instead of the usage of averages.
 Compared to the discussed ratio methods shows that the number of beds is less under or
overestimated. (Nguyen et al. 2005)

Disadvantages
 A lot of detailed data is necessary

Bachelor Thesis – Capacity planning in hospitals Page 22 of 34

4.2 OVERVIEW OF THE ADVANTAGES AND DISADVANTAGES OF THE DISCUSSED MODELS

Model Advantages Disadvantages

Ratio method on  Simple calculations (Nguyen et al.,  Fluctuations over time not taken
a local hospital 2005) into account. (Nguyen et al., 2005)
level  Not much detailed data necessary  Usage of averages might not rep-
resent the population. (Vasilakis &
Marshall, 2005)
 Number of beds usually underes-
timated (Harper & Shahani, 2002)
Ratio method on  Simple calculations (Nguyen et al.,  Fluctuations over time not taken
a national level 2005) into account. (Nguyen et al., 2005)
 Not much detailed data necessary  Number of beds usually overesti-
mated. (Nguyen et al., 2005)
Flow model  Includes detailed data in  A lot of detailed data is necessary.
Harper & Sha- calculation instead of the usage of  The model does not give any
hani averages. guidance in deciding about the
 Variability in the length of stay of targeted bed occupancy and
patients taken into account. refusal rate.
(Harper & Shahani, 2002)
Decision model  “No hypotheses concerning the  A lot of detailed data is necessary
Nguyen et al. admission or target bed occupancy
are needed.” (Nguyen et al. 2005)
 Includes detailed data in
calculation instead of the usage of
averages.
 Compared to the discussed ratio
methods shows that the number
of beds is less under or
overestimated. (Nguyen et al.
2005)

Bachelor Thesis – Capacity planning in hospitals Page 23 of 34

Comparing the simulation models and the ratio models we can conclude that the ratio models have
the advantage of being easy to use and they do not need a lot of detailed information. The
advantage of the simulation model is that the number of beds are better estimated.

4.3 CHAPTER SUMMARY

The methods to calculate the optimal number of beds can be divided upon using ratio methods and
using simulation model. In this chapter different ratio methods and different simulation models
were discussed and there advantages and disadvantages were compared. The ratio methods are
easier to use, while the estimations of the simulation models are better.

Bachelor Thesis – Capacity planning in hospitals Page 24 of 34

CHAPTER 5. ANALYSIS OF THE DUTCH CONTEXT.

In this chapter the Dutch health care context will be described. This description will be used to assess
whether the international models can be used in the Dutch context. As limited scientific research has
been conducted in this field, this chapter in mainly based upon policy papers of the government.

There are 199 hospitals in the Netherlands which in 2008 in total had 50722 beds. In the last three
years the total number of beds had declined in the Netherlands with 5%. This is mainly because of
the decreased average length of stay of patients. (Deuning, 2009) In the recent years the method to
decide upon the number of beds has changed significantly due to the actions of the government to
make the health care sector more market driven. Because of this, first a short explanation of the
method to decide upon the number of beds in the past is discussed, after which the current method
is discussed.

5.1 IN THE PAST

In 2005 the decision authority regarding the number of beds available per hospital has changed in
the Netherlands. Before 2005, the ministry was responsible for defining “the total number of beds
that is available per hospital. Within each hospital, the hospital management is responsible for the
allocation of beds to the different specialities for treatment of the several categories of patients dis-
tinguished.” (Vissers et al., 2001)
The number of beds the ministry decided upon was in the past also directly connected to the pay-
ment of hospitals through function-oriented budgeting. This budget for hospitals consisted out of
three parts:
Fixed costs, semi-fixed costs and variable costs. The costs for beds were included in the semi-fixed
part. (Vandermeulen et al., 2009)

5.2 CURRENT SITUATION

As of 2005 the government started to gradually change the way hospitals are financed and conse-
quently and more important for this thesis, the method to decide upon the number of beds for a
hospital. The government implemented a new system called the DBC (Diagnostic Treatment Combi-
nations) System. (Vandermeulen et al., 2009)

DBCS
In the Dutch DBC system health care is divided in three phases:
- Diagnosis

Bachelor Thesis – Capacity planning in hospitals Page 25 of 34

 - Treatment
- Billing

For every different disease a DBC combination is defined. In this specific DBC everything which is
needed to treat the disease is specified in a treatment profile. Furthermore a standard price is set
for every DBC based upon the standard costs. (“Basisuitleg DBCs”, http://www.dbconderhoud.nl/)

In the DBC systems there are two segments, the A and B segment. The main difference between
those two segments is that for the B segment hospitals have the freedom to decide itself whether it
will offer those practices and set its own prices for those DBCs. In segment A hospitals are obliged by
the government to offer those practices and the government also sets the standard prices for those
DBCs. (Klompenhouwer & Vos-Deckers, 2005)

Over time more and more health care practices are transferred to the B segment. When the DBC
system was implemented only 10% of the health care practices were put in segment B (Klompen-
houwer & Vos-Deckers, 2005), in 2009 already 34% were in segment B and the Dutch Healthcare
Authority (NZA) advises to extend the B segment to 50 % of the health care practices in 2011. (Klink,
2010)

RELEVANT CONSEQUENCES OF THE DBC SYSTEM

The consequences of this system for hospitals relevant for this thesis are:
- Hospitals are in segment B no longer financed based upon the function-oriented budgeting
consisting of the fixed, semi-fixed and variable costs, but upon the treatments they deliver.
(Klink & Bussemaker, 2009) These treatments are measured in DBCs. (Vandermeulen et al.,
2009)
- The number of beds available in a hospital is no longer defined by the ministry but in coop-
eration by the hospitals and the health care insurers on a local level. (Vandermeulen et al.,
2009) Hospitals and insurers make decisions upon the number of DBCs, the price and the
quality to be delivered in segment B. (Van der Meer & School, 2008) (Klompenhouwer &
Vos-Deckers, 2005)
In the negotiations between hospitals and insurers both have different interests. Insurers
will in this case be the most important representatives of the people who demand health
care. (Klompenhouwer & Vos-Deckers, 2005)

Bachelor Thesis – Capacity planning in hospitals Page 26 of 34

USING DBCS IN CAPACITY PLANNING
Hospitals can use the standardized needs specified in the different DBCs to make decisions regarding
capacity.
The hospital needs to translate the standardized needs of the DBCs to deliver - agreed upon with
insurers in segment B and the ones obliged to deliver in segment A - to the needed capacity. (van der
Meer & School, 2008) Based upon the DBC treatment profile the exact capacity needs can be de-
cided upon.
As these DBC treatment profiles and hence the translated needs are based upon average needs for
treatment, van der Meer & School (2008) suggest to calculate the capacity based upon the DBCs
agreed upon and add some extra buffer capacity to it.

5.3 CHAPTER SUMMARY

In this chapter the context of the Dutch health care sector is discussed. The extensive use of DBCs in
the current system is special for the Dutch context. The DBCs can be used while planning capacity.

Bachelor Thesis – Capacity planning in hospitals Page 27 of 34

CHAPTER 6. CONCLUSION

6.1 DISCUSSION AND CONCLUSIONS

This thesis aims to answer the question what methods are available to Dutch hospitals to plan the
capacity of beds in hospitals in an efficient way.

Many conditions are influencing the optimal number of beds a hospital should have available. First
of all the demand of care a certain hospital can expect is influencing the optimal number of beds. In
this thesis seven factors were identified which are influencing this demand. These factors are popu-
lation size; population characteristic; society standards; hospital characteristics; alternatives; patient
length of stay & future development of demand.

To always meet demand one could simply put a very large number of beds in a hospital. However
this would increase costs to a very high level. The decision concerning the optimal number of beds
can be seen as a trade-off between quality and costs.
In a sector which becomes more and more market driven the importance to focus on costs only be-
comes bigger. Having empty beds leads to very high costs and hence hospitals could not simply put a
very large number of beds in a hospital. Hospitals should focus on the utilization of their beds.
Having to little beds however has its effects on quality. Hospital beds influence quality in various
ways which can be categorised as clinical quality, accessibility and patient satisfaction.

Besides the trade-off between costs and quality, the decision is influenced by other practices like
demand management. Furthermore, the decision-authority and measurability influence the decision
as well.

There are several models available to make a decision regarding the number of beds. There are
simple models based upon ratios and more detailed models using simulation. In general the ratio
methods are easier to use, while the estimations of the simulation models are better.

In the Dutch context the extensive use of DBCs in the Dutch health care sector is important when
considering applying the international models discussed.
To decide about the usefulness of DBCs in capacity planning it is important to assess whether the
DBC system is taking into account all the relevant aspects of bed capacity planning identified in

Bachelor Thesis – Capacity planning in hospitals Page 28 of 34

chapter 2 and 3. Because there is a difference between the ways these factors are incorporated in
the different segments a distinction will be made between the A and B segment.

Demand factors:

Taken into account:

Segment A Segment B

Population size By government in decision about num- In negotiations about volume between
ber of DBCs a hospital is obligated to insurers and hospitals on local level
offer.
Population char- By government in decision about num- In negotiations about volume between
acteristic ber of DBCs a hospital is obligated to insurers and hospitals on local level.
offer.
Society standards In DBC itself In DBC itself
Hospital charac- By government in decision about num- When hospitals decide which practices
teristics ber of DBCs a hospital is obligated to to offer.
offer. In negotiations about volume between
insurers and hospitals on local level.
Alternatives By government in decision about num- In negotiations about volume between
ber of DBCs a hospital is obligated to insurers and hospitals on local level.
offer.
Patient length of In DBC itself using national averages. In DBC itself using local patient length
stay of stay.
Future develop- By government in decision about num- In negotiations about volume between
ment of demand ber of DBCs a hospital is obligated to insurers and hospitals on local level.
offer.

Decision conditions:

Taken into account:

Segment A Segment B

Costs In DBCs and set by government. Set for each DBC in negotiations be-
tween insurers and hospitals.

Bachelor Thesis – Capacity planning in hospitals Page 29 of 34

Quality In DBCs and set by government. Set for each DBC in negotiations be-
tween insurers and hospitals.
Demand man- Not taken into account in DBC system. Not taken into account in DBC system.
agement
Decision author- Government obligates hospitals to offer Hospitals and insurers have the author-
ity a certain volume and quality against set ity to decide about the volume, quality
costs for each DBC. and costs for each DBC.
Measurability Not taken into account in DBC system. Not taken into account in DBC system.

From this overview it can be concluded that especially in the B segment almost all aspects are either
taken into account in the DBCs itself or in the negotiations between healthcare insurers and hospi-
tals. However, as this overview is solely based upon a description of the Dutch DBC system in chap-
ter 5, future research could be conducted to test if all the factors are taken into account in the DBC
system as assumed.

In the B segment of the DBC system hospital and health care insurers share the responsibility to de-
cide about the capacity. For both it is important that the balance between costs and quality is opti-
mized. To decide about the capacity the hospitals and health care insurers can use various models.

The usage of DBCs makes it very easy to apply ratio methods as the information in the DBCs can be
used as averages in the ratio methods. However ratio methods might miss the detailed analysis of
the factors influencing demand as discussed in chapter 2. This might either lead to an underestima-
tion of beds, and hence a fall in quality or an overestimation of beds, with high costs as a conse-
quence.

To solve this problem the usage of simulation models might help, however since much detailed data
is needed to use these models, the simulation models might not be easy to apply. Considering the
Dutch context it seems that the ideal model would be a simulation model based upon the DBCs. Fu-
ture research could be conducted to develop such a model.

Bachelor Thesis – Capacity planning in hospitals Page 30 of 34

6.2 RECOMMENDATIONS FOR FUTURE RESEARCH

As discussed it is recommendable to conduct future research on different aspects. The most impor-
tant aspect future research is recommendable for is the development of a simulation model based
upon the DBC system.
Furthermore future research could test whether all the demand factors and decision conditions are
taken into account in the DBC system.
Besides it might be useful to test the theoretical framework of Jack & Powers (2004) discussed in
section 3.3 empirically. This framework could after it has been tested, give hospitals a guideline how
to apply demand management practices.

6.3 LIMITATIONS

This paper is solely based upon a review of available literature. The scope of this research is by this
character limited by the literature found and available in the Tilburg University database. Although a
careful search for literature has been conducted, the completeness of this thesis is therefore not
sure.

Bachelor Thesis – Capacity planning in hospitals Page 31 of 34

CHAPTER 7. REFERENCE LIST

7.1 SCIENTIFIC LITERATURE

Gaynor, M., & Anderson, G. F. (1995). Uncertain demand, the structure of hospital costs, and the
cost of empty hospital beds. Journal of Health Economics, 14(3), 291-317. Doi:
10.1016/0167-6296(95)00004-2

Gaynor, M., & Haas-Wilson, D. (1999). Change, consolidation, and competition in health care mar-
kets. Journal of Economic Perspectives, 13(1), 141-164.

Green, L. V., & Nguyen, V. (2001). Strategies for cutting hospital beds: The impact on patient service.
Health Services Research, 36(2), 421-442.

Hanlon, P., Walsh, D., Whyte, B. W., Scott, S. N., Lightbody, P., & Gilhooly, M. L. M. (1998). Hospital
use by an ageing cohort: an investigation into the association between biological, behav-
ioural and social risk markers and subsequent hospital utilization. J Public Health, 20(4), 467-
476.

Harper, P. R., & Shahani, A. K. (2002). Modelling for the planning and management of bed capacities
in hospitals. Journal of the Operational Research Society, 53(1), 11-18.

Jack, E. P., & Powers, T. L. (2004). Volume flexible strategies in health services: A research frame
work. Production and Operations Management, 13(3), 230-244.

Keeler, T. E., & Ying, J. S. (1996). Hospital costs and excess bed capacity: A statistical analysis. Review
of Economics and Statistics, 78(3), 470-481.

Kim, S. C., Horowitz, I., Young, K. K., & Buckley, T. A. (1999). Analysis of capacity management of the
intensive care unit in a hospital. European Journal of Operational Research, 115(1), 36-46.

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Klompenhouwer, L., & Vos-Deckers, G. (2005). DE DBC-METHODIEK Haarlemmerolie of een
werkzaam geneesmiddel voor de gezondheidszorg? Master ’s Thesis, Erasmus Universiteit
iBMG. Retrieved from
http://www.uvt.nl/faculteiten/fsw/departementen/tranzo/leergangen/scripties/Klompenho
uwer.pdf

Li, L., & Benton, W. C. (2003). Hospital capacity management decisions: Emphasis on cost control and
quality enhancement. European Journal of Operational Research, 146(3), 596-614.

Li, L. X., Benton, W. C., & Leong, G. K. (2002). The impact of strategic operations management deci-
sions on community hospital performance. Journal of Operations Management, 20(4), 389-
408.

Nguyen, J. M., Six, P., Antonioli, D., Glemain, P., Potel, G., Lornbrail, P., et al. (2005). A simple method
to optimize hospital beds capacity. International Journal of Medical Informatics, 74(1), 39-49.
doi: 10.1016/j.ijmedinf.2004.09.001

Oliveira, M. D. (2004). Modelling demand and supply influences on utilization: A flow demand model
to predict hospital utilization at the small area level. Applied Economics, 36(20), 2237 - 2251.

Ridge, J. C., Jones, S. K., Nielsen, M. S., & Shahani, A. K. (1998). Capacity planning for intensive care
units. European Journal of Operational Research, 105(2), 346-355.

Utley, M., Gallivan, S., Davis, K., Daniel, P., Reeves, P., & Worrall, J. (2003). Estimating bed require-
ments for an intermediate care facility. European Journal of Operational Research, 150(1),
92-100. doi: 10.1016/s0377-2217(02)00788-9

van der Meer, E.T. & School, M.A.A. (2008). De logistiek van het ziekenhuis. Medisch Contact,
49(63), 2058-2060

Vasilakis, C., & Marshall, A. H. (2005). Modelling nationwide hospital length of stay: opening the
black box. Journal of the Operational Research Society, 56(7), 862-869. doi:
10.1057/palgrave.jors.2601872

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Vissers, J. M. H., Van Der Bij, J. D., & Kusters, R. J. (2001). Towards Decision Support for Waiting Lists:
An Operations Management View. [10.1023/A:1011409711828]. Health Care Management
Science, 4(2), 133-142.

7.2 OTHER REFERENCES

Basisuitleg DBCs (N.D). DBC-onderhoud. Retrieved from

http://www.dbconderhoud.nl/GetDocument.ashx?DocumentID=685&name=Basisuitleg-
DBC's-&rnd=634117728149972666

Blokstra,A., Verschuren,W.M.M., Baan,C.A., Boshuizen,H.C., Feenstra,T.L., Hoogenveen,R.T.,

Picavet,H.S.J., Smit,H.A. & Wijga,A.H. (2007). Vergrijzing en toekomstige ziektelast: Prognose
chronische ziektenprevalentie 2005-2025. RIVM rapport 260401004/2007

Deuning,C.M. (2009). Beddencapaciteit ziekenhuizen 2008.Volksgezondheid Toekomst Verkenning,

Nationale Atlas Volksgezondheid.

Klinikum: geen plek meer op intensive care. (2010). Dagblad de Limburger.

Klink, A. (2010). Voortgangsrapportage DBC’s januari 2010. Rijksoverheid. Retrieved from

http://www.rijksoverheid.nl/onderwerpen/prestaties-belonen-in-
ziekenhuizen/documenten-en-
publicaties/kamerstukken/2010/01/19/voortgangsrapportage-dbc-s-januari-2010.html

Klink, A., & Bussemaker J. (2009). Ruimte en rekenschap voor zorg en ondersteuning. Rijksoverheid.
Retrieved from http://www.rijksoverheid.nl/documenten-en-
publicaties/kamerstukken/2009/07/09/ruimte-en-rekenschap-voor-zorg-en-
ondersteuning.html

Vandermeulen, L.J.R., Lommers, M.H.F., Dohmen, P.J.G., Pieter, D. (2009). Volledigheid nieuwe pro-
ductstructuur Onderzoek naar de verschillen tussen FB, DBC en DOT per specialisme en zie-
kenhuiscategorie. Prismant. Retrieved from
http://www.nza.nl/95826/98478/132854/85037/136593/Rapport_Volledigheid_productstru
ctuur.pdf

Wachtlijsten ZGT ineens stuk korter. (2009). De Twentse Courant Tubantia.

Bachelor Thesis – Capacity planning in hospitals Page 34 of 34