The Spillover Effects of Capacity Pooling in Hospitals

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 estimation strategy that combines the Heckman correction procedure and a heteroskedasticity-based identification approach, we find that off-service placement has substantial negative spillover effects on the efficiency of care delivered to on-service patients. In particular, we find that a 10 percentage point increase in the level of off-service placement during a patient’s hospitalization is associated with a 10.9% increase in length of stay. Through a series of counterfactual analyses, we propose alternate routing and capacity-planning policies that could meaningfully improve the efficiency of care in the inpatient setting.