Value of Capacity Flexibility in Healthcare

36 Pages Posted: 14 Nov 2019

See all articles by Shima Nassiri

Shima Nassiri

University of Michigan - Stephen M. Ross School of Business

Masha Shunko

Foster School of Business, University of Washington

Hamed Mamani

University of Washington - Michael G. Foster School of Business

Date Written: November 5, 2019

Abstract

Problem Definition: Healthcare industry is in dire need of operational improvements to enhance efficiency and reduce costs. Using observational data from an outpatient clinic, we study the impact of introducing capacity flexibility (via exam room design) on the efficiency of care provision, which leads to direct cost reduction.

Academic/Practical Relevance: Flexible design is well-studied in manufacturing and is largely ignored in healthcare industry despite its needs for improvements. We contribute to the academic literature and practice by extending flexible design applications to the healthcare setting and by offering an economically viable way to improve efficiency.

Methodology: Using a proprietary dataset that covers the time before and after the flexible room redesign, we utilize a difference-in-differences model to identify the effect of this design on the efficiency of healthcare as measured by the physician time and the length of stay. Additionally, we study the heterogeneous impact of the new design on different visit types using a difference-in-difference-in-differences model.

Results: We find that the flexible design reduces the physician time and the length of stay by about 14\% and 12\%. We demonstrate robustness of the results across different patient and visit types. Additionally, we observe further reduction in the length of stay due to flexible design on the patient visits that involve high multitasking level (i.e., the physician serving multiple patients simultaneously for a significant portion of her interaction with patients).

Managerial Implications: Manufacturing flexibility is known to improve operational performance, but this topic has not received equal coverage for service facilities. While the value of exam room flexibility is ex-ante unclear, we demonstrate substantial efficiency gains associated with flexibility and quantify the improvement. Comparing this benefit with the cost of implementation informs managers about the practicality of such design change. Moreover, we provide managerial insights regarding when such design changes lead to the highest improvement.

Keywords: healthcare, efficiency of care, facility design, flexibility, difference-in-differences

Suggested Citation

Nassiri, Shima and Shunko, Masha and Mamani, Hamed, Value of Capacity Flexibility in Healthcare (November 5, 2019). Available at SSRN: https://ssrn.com/abstract=3481506

Shima Nassiri

University of Michigan - Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States
7346473308 (Phone)

HOME PAGE: http://https://sites.google.com/a/umich.edu/shima-nassiri/home

Masha Shunko (Contact Author)

Foster School of Business, University of Washington ( email )

PACCAR Hall
Seattle, WA 47185
United States

Hamed Mamani

University of Washington - Michael G. Foster School of Business ( email )

Box 353200
Seattle, WA 98195-3200
United States

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