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Optimization-driven framework to understand health care network costs and resource allocation

Author

Listed:
  • Fernanda Bravo

    (UCLA Anderson School of Management)

  • Marcus Braun

    (DataRobot)

  • Vivek Farias

    (MIT, Sloan School of Management)

  • Retsef Levi

    (MIT, Sloan School of Management)

  • Christine Lynch

    (Beth Israel Deaconess Medical Center)

  • John Tumolo

    (Beth Israel Deaconess Medical Center)

  • Richard Whyte

    (Beth Israel Deaconess Medical Center)

Abstract

In the last several decades, the U.S. Health care industry has undergone a massive consolidation process that has resulted in the formation of large delivery networks. However, the integration of these networks into a unified operational system faces several challenges. Strategic problems, such as ensuring access, allocating resources and capacity efficiently, and defining case-mix in a multi-site network, require the correct modeling of network costs, network trade-offs, and operational constraints. Unfortunately, traditional practices related to cost accounting, specifically the allocation of overhead and labor cost to activities as a way to account for the consumption of resources, are not suitable for addressing these challenges; they confound resource allocation and network building capacity decisions. We develop a general methodological optimization-driven framework based on linear programming that allows us to better understand network costs and provide strategic solutions to the aforementioned problems. We work in collaboration with a network of hospitals to demonstrate our framework applicability and important insights derived from it.

Suggested Citation

  • Fernanda Bravo & Marcus Braun & Vivek Farias & Retsef Levi & Christine Lynch & John Tumolo & Richard Whyte, 2021. "Optimization-driven framework to understand health care network costs and resource allocation," Health Care Management Science, Springer, vol. 24(3), pages 640-660, September.
  • Handle: RePEc:kap:hcarem:v:24:y:2021:i:3:d:10.1007_s10729-021-09565-1
    DOI: 10.1007/s10729-021-09565-1
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    References listed on IDEAS

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    1. Sebastian Hof & Andreas Fügener & Jan Schoenfelder & Jens O. Brunner, 2017. "Case mix planning in hospitals: a review and future agenda," Health Care Management Science, Springer, vol. 20(2), pages 207-220, June.
    2. Blake, John T. & Carter, Michael W., 2002. "A goal programming approach to strategic resource allocation in acute care hospitals," European Journal of Operational Research, Elsevier, vol. 140(3), pages 541-561, August.
    3. Noreen, Eric & Noreen, Eric & Soderstrom, Naomi, 1994. "Are overhead costs strictly proportional to activity? : Evidence from hospital departments," Journal of Accounting and Economics, Elsevier, vol. 17(1-2), pages 255-278, January.
    4. Ranjani A. Krishnan & Satish Joshi & Hema Krishnan, 2004. "The influence of mergers on firms' product‐mix strategies," Strategic Management Journal, Wiley Blackwell, vol. 25(6), pages 587-611, June.
    5. David Dranove & Mark Shanley, 1995. "Cost reductions or reputation enhancement as motives for mergers: The logic of multihospital systems," Strategic Management Journal, Wiley Blackwell, vol. 16(1), pages 55-74.
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    Cited by:

    1. Acuna, Jorge A. & Zayas-Castro, Jose L. & Feijoo, Felipe, 2022. "A bilevel Nash-in-Nash model for hospital mergers: A key to affordable care," Socio-Economic Planning Sciences, Elsevier, vol. 83(C).

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