Capacity Planning at Arnold Palmer Hospital

Since opening day, Arnold Palmer Hospital has experienced an explosive growth in demand for its services. One of
only six hospitals in the U.S. to specialize in health care for women and children, Arnold Palmer Hospital has cared
for over 1,500,000 patients who came to the Orlando facility from all 50 states and more than 100 other countries.
With patient satisfaction scores in the top 10% of U.S. hospitals surveyed (over 95% of patients would recommend the
hospital to others), one of Arnold Palmer Hospital’s main focuses is delivery of babies. Originally built with 281 beds
and a capacity for 6,500 births per year, the hospital steadily approached and then passed 10,000 births. Looking at the
table, Executive Director Kathy Swanson knew an expansion was necessary.

With continuing population growth in its market area serving 18 central Florida counties, Arnold Palmer Hospital was
delivering the equivalent of a kindergarten class of babies every day and still not meeting demand. Supported with
substantial additional demographic analysis, the hospital was ready to move ahead with a capacity expansion plan and
a new 11-story hospital building across the street from the existing facility.

Thirty-five planning teams were established to study such issues as (1) specific forecasts, (2) services that would
transfer to the new facility, (3) services that would remain in the existing facility, (4) staffing needs, (5) capital
equipment, (6) pro forma accounting data, and (7) regulatory requirements. Ultimately, Arnold Palmer Hospital was
ready to move ahead with a budget of $100 million and a commitment to an additional 150 beds. But given the growth
of the central Florida region, Swanson decided to expand the hospital in stages: the top two floors would be empty
interiors (“shell”) to be completed at a later date, and the fourth-floor operating room could be doubled in size when
needed. “With the new facility in place, we are now able to handle up to 16,000 births per year,” says Swanson.

Discussion Questions
1. What approach is being taken by Arnold Palmer Hospital toward matching capacity to demand?
2. What kind of major changes could take place in Arnold Palmer Hospital’s demand forecast that would leave the
hospital with an underutilized facility (namely, what are the risks connected with this capacity decision)?
3. Use trend analysis to forecast the point at which Swanson needs to “build out” the top two floors of the new
building, namely, when demand will exceed 16,000 births.

Year Births
1995 6144
1996 6230
1997 6432
1998 6950
1999 7377
2000 8655
2001 9536
2002 9825
2003 10253
2004 10555
2005 12316
2006 13070
2007 14028
2008 14241
2009 13050
2010 12571
2011 12978
2012 13529
2013 13576
2014 13994