Spillover Effects of Capacity Pooling in Hospitals
Lim JM, Hummy Song, Julius Yang. 2023.
Forthcoming in Management Science. (SSRN).
Second Place, POMS CHOM Best Paper Competition, 2022.
Selected to present at MSOM Healthcare SIG, 2021.
Off-service placement is a common capacity pooling strategy that hospitals utilize to address mismatches in supply and demand that arise from the day-to-day variation in patient demand. This strategy involves placing patients in a bed in a unit that is designated for another specialty service. Building on prior work that documents the negative first-order effects of off-service placement on patients who are placed off service themselves, we quantify the spillover effects of this practice on patients who are actually placed on service. Using an instrumental variables approach, we find that patients placed on service experience a substantial spillover effect of off-service placement, manifesting as a longer length of stay, a higher likelihood of hospital readmission, and a higher likelihood of clinical trigger activation. Our analyses show it is not only the average level of off-service placement, but also the volatility of off-service placement, that contributes to this spillover effect. Through a series of counterfactual analyses, we propose alternate routing policies that could meaningfully improve outcomes around the efficiency and quality of care in the inpatient setting.
Published in Management Science. (SSRN).
First Place, MSOM Student Paper Competition, 2021.
Selected to present at Wharton Workshop on Empirical Research in OM, 2021.
The Hospital Value-Based Purchasing (VBP) Program is Medicare's implementation of yardstick incentives applied to hospitals in the U.S. Under the VBP Program, 2% of all Medicare payments to hospitals, estimated to be US$1.9B in the fiscal year 2021, are withheld and redistributed based on their relative performance in the quality of delivered care. We develop a dynamic equilibrium model in which hospitals are engaged in repeated competition under yardstick incentives. Using structural estimation methods, we recover key parameters that govern hospitals' decisions to invest in quality improvement including the financial and non-financial costs and uncertain outcomes of investment. By dynamically solving for hospitals' individually optimal investment policies, we estimate the trajectory of quality improvements for each hospital, including its investment decisions and quality levels throughout the implementation of the VBP Program. Our counterfactual analyses explore the benefits, on the one hand, of modifying the overall size of the yardstick incentives and, on the other hand, of implementing a more focused program tailored to hospital type. We find that increasing the size of the incentives from 2% to 4% would have resulted in an additional quality investment of US$1.2B from 2011 to 2018, leading to a 3.3% reduction in the average rate of central-line associated bloodstream infections (CLABSI). Applying yardstick incentives to the tailored hospital peer groups, even without changing the size of the incentives, can lead to an average reduction of 1.4% in the rate of CLABSI among groups of hospitals associated with the highest costs of quality investment.