Value of Capacity Flexibility in Healthcare

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