Maximizing profit and productivity at a multi-specialty private hopital using linear programming

ABSTRACT

Managers of health care organizations make financial decisions on a regular basis. An element of uncertainty exists in making budgetary decisions. Managers use mathematical models on financial information to minimize the uncertainty in forecasting future costs or profits. Linear programming with the aid of computer software package, is one such mathematical modeling technique that can be used by hospital managers to predict the behavior of financial variables. This paper demonstrates how Barnes hospital in Saint Louis Missouri, used linear programming to make budgetary allocation and maximize profit. 26 financial variables and 64 constraints were plugged in the linear equation, for a total budget amount of $28 million. Given the various limitations specified by the management, the mathematical equation of linear programming, after 76 iterations, yielded a maximum profit of $4.8 million for the Barnes hospital. Linear programming also suggested budgetary allocations for each of the 26 hospital departments and surgical procedures included in the model. Linear programming is a tool that hospital managers can use to help them in making financial decisions that may require complex calculations. As long as the managers understand the limitations and preferences of the hospital and can plant those as relationships in the linear programming equation, then they can make good use of this modeling technique in financial management