The effect of lean on performance: a longitudinal study of US Hospitals

Abstract

Purpose

There has been little empirical research focused on the effect of lean on hospital performance in the form of a consolidated methodology. This paper aims to apply a more sophisticated approach to examine whether hospitals’ decision for lean implementation is endogenous and test the effects of lean on hospital performance.

Design/methodology/approach

This study uses a publicly available data set of hospitals across the USA from 2002 to 2019 and performs two-stage least squares (2SLS) analysis. In the first stage, a probit model is used to estimate hospitals’ decision to implement lean. The fitted probability values from the first stage are used in the second stage to test the relationship between lean and hospital performance. Ordinary least squares (OLS) regression results are compared with those of the 2SLS approach.

Findings

The decision to implement lean is significantly associated with hospital-specific characteristics (the complexity of care, size and cost-to-charge ratio), indicating hospitals’ decision for lean implementation is endogenous. Moreover, there is strong evidence that lean implementation is positively associated with hospital financial and operational performance. The Hausman F-tests confirm the presence of endogeneity and this, in turn, suggests that OLS regressions result in unreliable estimates.

Practical implications

The findings of this study can help hospital managers benchmark performance and explore opportunities for profit and efficiency improvement. The findings are also relevant to policymakers who strive to lower health-care spending.

Originality/value

This study is motivated by the challenges facing the health-care industry. This study is among the first to investigate endogeneity in lean implementation and the association between lean and hospital performance using large-scale archival panel data. The use of the 2SLS approach provides more confidence in statistical findings.

Citation

Zhang, H. (2021), "The effect of lean on performance: a longitudinal study of US Hospitals", Journal of Accounting & Organizational Change, Vol. 17 No. 5, pp. 728-752. https://doi.org/10.1108/JAOC-05-2020-0062