Benefits and implications of competing on process excellence: Evidence from California hospitals

As the healthcare industry is in the midst of a shift to value-based payment models, hospitals face increasing pressure to balance strategic priorities and to improve both the effectiveness and efficiency of care delivery. To confront these challenges, hospitals are placing an increased emphasis on process excellence. We use process excellence to denote a hospital's ability to, on average, treat a patient in the most effective and efficient manner. We use actual improvements in cost per discharge (CPD), average length of stay (ALOS), and conformance quality (ConfQual), to assess changes in a hospital's level of process excellence. In this paper, we investigate empirically the association between process excellence and overall measures of hospital performance, including market share and profitability. To this end, we leverage secondary data sources and regression analysis to track over time the performance of 288 short-term acute care hospitals located in California. Our analysis leads to several important implications. First, we find that a hospital's focus on improving CPD and ALOS, is associated with higher inpatient market share, whereas improvements in ConfQual are negatively associated with market share. Second, improvements in CPD are associated with higher profitability while there is no direct relationship between improvements in both ALOS and ConfQual and profitability. Third, CPD is found to mediate the relationship between both ALOS and ConfQual and hospital performance. We further discuss the implications of this study for theory and practice.