Utilization: Is More Always Better? Zone of Efficiency, Complexity, and Costs of Care

Problem definition: Faced with the growing need to improve access to care, hospitals have been operating at capacity in recent times. We argue, however, that the pursuit of utilization beyond a threshold might come at a cost. We propose that there exists a zone of efficiency within which the costs of care reach the minimum and the pursuit of utilization outside of this zone may be counterproductive. Our second objective is to explicitly incorporate the complexity of care requirements in understanding the relationship between utilization and costs of care. We propose that complexity exacerbates the demands on resources during care delivery and shifts the zone of efficient utilization lower. Methodology/results: Using patient-level data from over 325,338 inpatient discharges in 156 hospitals, we empirically test these propositions. Our findings indicate that the marginal cost curve is nonlinear, revealing a zone of efficiency between 75%–85% utilization, within which costs per patient day are minimized. Departing from this zone (either above or below it) incurs substantial cost penalties. The results also reveal heterogeneity in the cost implications of utilization across departments with varied complexity regimes. Managerial implications: The study findings carry key implications for managers in improving access to care in an efficient manner. Our study informs decision making in this regard by highlighting that more (utilization) is not always better. Furthermore, a one-size-fits-all policy across all departments may be counterproductive. Whereas managers may pursue high utilization in some departments, it may not be prudent in others.

Supplemental Material: The online supplement is available at https://doi.org/10.1287/msom.2023.0702.