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Operations and Supply Chain Management

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Operations and Supply Chain Management

Executive Summary:

The director of the Middletown General Emergency Department, Dr. Nate Greene, is looking forward to expand the observation unit at the hospital since the hospital does not provide enough beds for patients while the hospital could have a much higher revenue than the current situation.

This report analyzes how much expansion the hospital needs, mainly the observation unit, and how much could this expansion increase the revenue in addition to the required investment and the Rate of Investment (ROI).


The hospital accompanies 400 inpatient beds, and according to the 2011 statistics, intakes 200 patients per day where 50 patients go through the process and 150 patients get discharged right away. Of those 50 patients who go to the process, 20% go through the observation unit to see if they need to be admitted or nor, while the other 80% are admitted immediately. Of those 20% who went through the observation unit, 80% leave the hospital in 1.2 days while the other 20% go to the admitted unit and stay 5.8 days before they are discharged. On the other hand, the 80% who have been admitted stay at the hospital for 5.8 days before they are discharged as well.

The figure below explains the above-mentioned case.

[pic 1]

Thus, 40 patients are admitted immediately and 10 patients go through the observation unit, and of those 10 patients in the observation unit, 8 are discharged while 2 are admitted.

The net profit of the hospital from the observation patients using inpatient beds is $3300 per patient and $3500 for admitted patients. Also, the hospital gains $3700 per patient for the patients who are discharged without being admitted.

Accordingly, the average census of the observation patients would be , while the average census of the admitted patients would be . [pic 2][pic 3]

Looking on how large the Emergency Department observation unit be to achieve a target utilization of 80%, there are 2 separate methods that we can use, which are either you consider 1 batch of 200 patients who go through the process and then wait until they are done to take another 200 patients, or you consider piling up of the patients.

If you do not consider piling up, then the number of beds required by the observation unit would be   and the unit already has 10 beds; thus, 5 beds should be added. However, if you consider piling up, then the hospital should have . According to our attached excel sheet, the Observation unit should have 24 beds, and considering that the unit already has 10 beds, then 14 beds should be added to reach this target.  The table below also explains how we came out with the 24 beds. In the excel sheet, you will find the total beds of 296; then, the one after is for 346; thus, we used cross multiplication and came out with our result.[pic 4][pic 5]


Number of Patients at 80% with piling

Total Beds Used








Revenue per day:

Considering the hospital is operation on full complete cycle, the total net profit per day of the 50 patients is $173,400 as for the current situation. The breakdown is as follows, and also available on the excel sheet.


No. Patients

Profit per Patient

Total profit

Admitted Patients




Discharged after observation




Admitted after observation








If those 14 beds to be added, the observation bed would have a net profit of $3,700 per patient according to Dr. Greene in the case.



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