This case study considers the likely benefits and costs to Frederick Memorial Hospital resulting from a decision to reconfigure its courier service by way of vehicle diversification and route realignment. Presently, Frederick Memorial Hospital couriers employ inefficient utility vans on redundant routes that are not meeting the hospital’s entire demand for courier services. In fact, continuing courier service operations as currently configured will result in a cumulativecommercial courier expense of $565,491.88 over the next five years. Additionally, over that same period, cumulative manpower expenses will exceed $1.9 Million, and fuel and maintenance and repair expenses will surpass $253,000 and $60,000, respectively. In total, the current courier service configuration will cost Frederick Memorial Hospital $3,008,879.54 over the next 5 years. By way of investing in fuel-efficient vehicles, reducing manpower levels, and realigning courier routes, this case proposes changes to the courier service that represent cumulative savings over a five-year analysis period.
Frederick Memorial Hospital (FMH) is an inpatient healthcare facility in Frederick County, Maryland, and has maintained a strong outpatient competitive advantage since its establishment in 1902. Located in western Maryland, approximately fifty miles from both Baltimore and Washington D.C., FMH is the most convenient healthcare facility in the county and enjoys a stable, paternal relationship with the Frederick community. Despite this time-honored partnership, however, the rapid progression of the healthcare industry has forced FMH to evolve with its surroundings. With twenty satellite facilities, including a state-of-the-art regional cancer therapy center, three outpatient ancillary centers, two immediate care facilities, a nursing and rehabilitation center, and a comprehensive wellness center, FMH maintains a significant patient care footprint within the county. In an effort to maintain competitive advantage, two additional ancillary facilities will enter the construction phase this fall. As FMH celebrates expansion and technological advancements, it is also faced with increased support requirements associated with growth. The constant strain related to workforce shortages and limited facilities keeps FMH searching for viable alternatives. Additionally, as the hospital footprint continues to expand, transportation requirements associated with its off-site Materials Distribution Center (MDC), located less than two miles from the main campus, are significantly compounded. The burden of ferrying medical and office supplies, equipment, linen, and medical records to and from the main facility and its satellites is shouldered exclusively by the FMH courier service, which is housed at the MDC. The above list comprises the bulk of items historically transported by the hospital’s ten-vehicle courier service. However, as FMH incorporated offsite ancillary centers into its healthcare system, the transportation of laboratory specimens was also bestowed upon the service. Today, in addition to the mandatory staple of supplies, linen, mail, and equipment, the courier service transports thousands of specimens worth millions of dollars in revenue to the hospital laboratory each year. The roots of the FMH courier service can be traced back to 1989, when a single van was purchased for the transportation of laboratory specimens. Due to reimbursement and billing complications, the van was quickly assigned to the materials management division, which was then located on the main campus. Over the next eight years the courier service evolved into seven employees, four primary vehicles – one wagon, one box truck, one Jeep, and the original van – and a borrowed vehicle from FMH Home Health. In December 2011, Kowalski-Dickow Associates, Inc., a healthcare consulting firm, conducted an analysis of the courier service as it then operated. The firm made several recommendations that may or may not have been implemented. The after effects of the analysis have been difficult to determine, as time has rendered most of its content non-applicable. In the ten years since the Kowalski-Dickow study, the FMH courier service has relocated to the offsite MDC and has obtained three additional employees and six additional vehicles. Currently, the hospital leases two box trucks and owns seven utility vans and one Jeep Cherokee. As noted, the courier service is fundamental to the financial viability of the FMH laboratory. In addition to this lucrative contribution, it also provides for the daily operation of the main campus and several satellite facilities. From linen to office supplies, biohazard waste to cash deposits, the FMH courier service transports a comprehensive list of supplies and material for its customers seven days a week. Aside from daily administrative and operational management of courier service employees and a noble effort to maintain satisfaction among customers, the FMH courier service has gone financially and strategically uncontested for years. Perhaps rightfully so, the leadership at FMH have likely overlooked the service historically, rather focusing their attention on major, multimillion dollar projects, such as the recently completed, six-year major construction project,
Current Courier Service Configuration and Challenges Faced by FMH
Project 2020, or the Cyber Knife endeavor at its regional Cancer Treatment Center. In fact, since it is difficult to ascertain whether or not consultant recommendations were heeded in 2011, it is highly unlikely that the courier service has ever undergone financial or strategic scrutiny. As an unfortunate and unattributable result, the FMH courier service has improperly evolved and currently operates inefficiently, as will be evidenced in this analysis. In meeting with hospital leadership, they quickly offered an opportunity to conduct an analysis of the courier service. They were both concerned that the service was not operating as efficiently as it should and felt that it was time to take a closer look. They were in agreement that, aside from the consultant firm ten years ago, little attention had been afforded the courier service and they both felt that perhaps it had wandered astray over the years. Their concerns are legitimate. Investigation into the service has revealed several facts and figures that are incongruent with sound financial objectives.
The first troublesome figure was discovered when examining the courier service 2019 financial report and turning to the gross operating margin, which was -$330,725. Despite the lack of additional information or background knowledge, this figure seemed excessively high. The second bothersome figure was the total miles driven by the service in 2020, which were 106,127. At nearly 9,000 miles a month, the question of where these vans were driving and why quickly materialized. Digging deeper into the 2020 financial report, the cost of leases, fuel, and maintenance for the service’s vehicles also drew attention. During that year, FMH spent $26,581 on box truck leases, $28,857 on fuel, and $8,849 on maintenance. Despite the high cost of gasoline, nearly $40,000 a year seemed like an excessive amount to be spending on gas and maintenance. Ultimately, this preliminary investigation led to the conclusion that there must be a more efficient way to operate the FMH courier service. Purchasing newer, more fuel-efficient vehicles, which would require little to no maintenance, instantly surfaced as a viable alternative. Knowing that the courier service could not be analyzed without first experiencing what it actually does for FMH on a daily basis, a full day was set aside to ride along with one of the couriers. This enlightening experience proved extremely beneficial, as it supported initial inclinations that the courier routes and services were redundant and repetitive. One of the first observations noted was the fact that many of the ten routes overlapped.