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Business of Health

A business man, a doctor and an engineer sit in a room… What sounds like an opening line to a cheesy joke is actually what’s taking place every single day at a hospital where I study.

In June 2014, the University of Michigan Hospitals & Health Centers projected that it will end its 2014 fiscal year with an operating margin of 0.7 percent ($17 million) on revenues of $2.52 billion. 2015 goal for the hospital is to achieve 3 % operating margin on the projected revenue of $2.66 billion. University of Michigan Health System is a non-profit entity and the positive margins are used to fund continued advances in patient care, education, research, and the facilities needed to support these functions. [1]

Most of us think of hospitals only when we are or someone we know of is sick and require medical attention. However, we usually foresee the fact that, healthcare is among the few industries that are here to stay, almost indefinitely. In other words, the demand will always be there, now as in all industries, it’s more about how to capture that demand and turn it into a revenues.

With the increasing competition and diminishing margins, it was first the automakers and other manufacturers that turned their heads towards process optimizations. They have realized that by optimizing procedures and eliminating wastes from the system, they could decrease their costs and increase their profit margins. It was like finding piece of money in your pocket that you have forgotten about. After all the small bits and pieces analyzed rigorously, there would be no money left on the table, in their cases, left on the assembly lines.

However, now, there is a shift from manufacturing to almost all industries where better practices are sought after. Among them, one stood out the most to me as I was attending seminars regarding Industrial Engineering and Health Care. One thing the University of Michigan is really good at is, not so surprisingly, utilizing its resources.

Established in 1869, UMHS is considered one of the nation’s leading medical and research institutions and has received many awards and honors recognizing its advanced medical care, leading-edge biomedical research and broad range of educational activities. By having the world’s second best Industrial Engineering program right across the street from the hospital, UMHS is now offering joint projects with the hospital and the IE department more than ever.

Here are some of the examples in which doctors and operations research engineers come together to create solutions:

Nurse scheduling, ambulance dispatching, surgery planning, inventory management, personalized medicine, donor matching, imaging optimization, optimal control of emergency room triage and treatment processes, inverse optimization and applications to knowledge-based radiation therapy treatment planning.

What is fascinating is with analysis and implementation of developed procedures, not only the hospitals can reduce their costs, but more importantly the quality of patient care and effectiveness of treatments can also increase drastically. According to Bagian and Lee’s paper titled Incorrect Surgical Procedures Within and Outside of the Operating Room [2], by implementing the following procedures, the corresponding percentages of decrease would happen in wrong site and wrong patient operations. (Wrong site: operation on the wrong side of the patients, such as left knee instead of right)

Procedural Implementation % Reduction in Wrong Site/Wrong Patient
Consent forms 45 %
Marking the site 65 %
Patient identification 75 %
Taking “Time-Out” in the OR 85 %
Checking imaging data 20 %

Healthcare is among one of the most debated topics in the world, both politically and economically. It is certain that it will remain a huge industry and with the increasing competition, new practices and advancements in technology will also remain as an area where multidisciplinary approach to problems will prove to be most beneficial. It is a field in which industrial engineers can take principles used for decades in manufacturing and apply it to healthcare and take pleasure in knowing that they are having a positive impact on the health of individuals.


[1] –

[2] – Bagian, J, & Lee, C. et al. Incorrect Surgical Procedures Within and Outside of the Operating Room.  ARCH SURG/ VOL 144 (NO. 11), NOV 2009

Barbaros Serter
Driven by his passion to solve problems and his love of challenges, Barbaros studied Industrial and Operations Engineering program at the University of Michigan. Graduated in 3.5 years from this world's 2nd best IOE program, now he is pursuing his Masters again at the University of Michigan, focusing on International Finance and Business Management. Working in various positions ranging from product development engineer to investment analyst, his passion for challenging complex industrial problems makes him steer towards strategical consulting.

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