Alternative information processing mechanisms in hospital supply chains: Impact on cost, quality, and patient satisfaction

Hospitals are under tremendous pressure to improve multiple performance dimensions that may be at odds, including cost containment, clinical quality, and patient satisfaction. The need to improve performance on multiple fronts is compounded by sources of uncertainty that include upstream diversity of supply chain (SC) partners, internal diversity of clinical specialties provided, and downstream diversity of patient conditions. Information processing theory (IPT) suggests two strategies for dealing with uncertainty: reduce the amount of information elevated to higher levels for processing and accommodate the amount of information by increasing information processing at other levels. We apply IPT to investigate (i) the relationship between the two information processing strategies in a hospital's SC and its cost containment, clinical quality, and patient satisfaction performance, and (ii) how these relationships may be moderated by diversity in the hospital's SC partners, clinical specialties, and patients, the common sources of uncertainty in hospital SCs. These questions were examined using regression analysis of primary data from acute care hospitals matched with secondary data from the Centers for Medicare and Medicaid Services, American Hospital Association and the Agency for Healthcare Research and Quality measuring hospital operating characteristics and performance. The analysis yielded several important findings: (i) while a slack resources strategy (uncertainty reduction) is effective for improving patient satisfaction performance, it is ineffective for reducing cost, (ii) a lateral relations strategy (uncertainty accommodation) is effective in improving all three performance dimensions, and (iii) these relationships are moderated differentially by the three diversity dimensions only for lateral relations. These findings offer important managerial insights about hospitals’ efforts to improve potentially conflicting performance outcomes and suggest interesting opportunities for future research applying IPT to this important topic.