Exploring risk pooling in hospitals to reduce demand and lead time uncertainty

Abstract - Nearly every eighth German hospital faces an elevated risk of bankruptcy. An inappropriate use of inventory management practices is among the causes. Hospitals suffer from demand and lead time uncertainty, and the current COVID-19 pandemic worsened the plight. The popular business logistics concept of risk pooling has been shown to reduce these uncertainties in industry and trade, but has been neglected as a variability reduction method in healthcare operations research and practice. Based on a survey with 223 German hospitals, this study explores how ten risk pooling methods can be adapted and applied in the healthcare context to reduce economic losses while maintaining a given service level. The results suggest that in general risk pooling may improve the economic situation of hospitals and, in particular, inventory pooling, transshipments, and product substitution for medications and consumer goods are the most effective methods in the healthcare context, while form postponement may be unsuitable for hospitals due to the required efforts, delay in treatments, and liability issues. The application of risk pooling in healthcare requires willingness to exchange information and to cooperate, adequate IT infrastructure, compatibility, adherence to healthcare laws and regulations, and securing the immediate treatment of emergencies. Compared to manufacturing and trading companies, hospitals seem to currently neglect the variability reducing effect of risk pooling.