Perspectives on Various Issues of Interest

Quality penalties and continuity of health care

In a study my co-authors and I examine whether quality penalties aimed at reducing readmissions improve continuity of health care. We investigate if the quality penalty policy impacts continuity of care for services that were targeted by the policy through what we refer to as primary spillover effects. We also investigate the secondary spillover effects of the quality penalty policy on continuity of care for related ailments that were not targeted by the policy. The findings of this study show that externalities from quality penalties for readmission not only benefit continuity of care for the regulated ailments, but also allow health care organizations to adapt their existing routines and unlock continuity of care improvements for related, but non-targeted ailments. The finding that continuity of care does not diminish for unrelated services assuages concerns that hospitals respond strategically by neglecting or redirecting resources away from unrelated services. We provide novel insights as to how organizations respond to regulation by actively re-configuring their care patterns and coordinating service provision with attendant spillover effects on a variety of patients. Processual mechanisms such as the source of patient admissions and length of stay, and structural mechanisms such as system size and investments in continuity of care facilitate the spillover effects. 

Source: Ananthakrishnan, R., Deore, A., Nair, A. Virtuous Spillover Effects of Quality Penalties on the Continuity of Health Care. Working paper.

 

The Role of Social Media in Linking Corporate Social Irresponsibility with Abnormal Returns

Interest in the topic of corporate social irresponsibility (CSI) has burgeoned in recent years. CSI covers organizational activities that have an adverse impact on investors, employees, customers, suppliers, or the local communities. This set of organizations and individuals represent the stakeholders of a firm whose expectations of a certain behavioral standard are not met when firms cause harm through their actions and do not take steps to rectify the situation. Information about firm actions that may have compromised sustainability objectives can have a multifaceted outcome. Given that negative news receives more attention and deliberation, CSI can not only shape the sentiments of customers and media but also affect firm performance from the reaction of customers and stakeholders. At the same time, as stakeholders may be more focused on other performance measures such as cost and quality, instances of CSI may also end up receiving low to moderate attention, thereby reducing their negative effects. If this is indeed the case, firms can misbehave on the sustainability front with little consequences. As such, undertaking further research investigation is important to discern the impact of CSI on sentiment formation and financial outcome. Drawing on stakeholder theory and attribution theory, in this study we investigate the association of firms’ environmentally irresponsible actions with social media sentiments and abnormal stock returns.

In our research we examine how corporations’ environmental impact influences social media sentiment and firm value. To address this important question, we analyze a large-scale dataset collected from five sources (Trucost, Infegy Atlas, Center for Research in Security Prices, COMPUSTAT, and Harris Interactive). We find that environmental impact results in less favorable social media sentiment toward the firm. Natural resource usage and land, water, and air pollution have the most profound effect on social media sentiment of the various types of environmental impacts. However, brand equity helps insulate the negative effect of environmental impact and simultaneously strengthens the positive relationship between social media sentiment and the firm’s long-term abnormal returns; by contrast, market competition weakens this relationship. The results further show that social media sentiment mediates the link between environmental impact and firm value.

The research findings provide useful implications to aid firms in managing their environmental impact so as to avoid negative social media response and, in turn, enhance firm value. Ultimately, this study calls for the careful management of investments in activities detrimental to the environment, because consequent negative comments on social media can negatively affect firm value. Furthermore, firms lacking brand equity and facing intense market competition need to be especially vigilant with their activities that can be construed as socially irresponsible.

Source: Nair, A., Nguyen, H. Environmental Impact, Social Media, and Abnormal Returns: The Moderating Role of Brand Equity and Competition. Working paper.

Federal Government Contracting for Disaster Management

About 500 disasters occur every year, affecting more than 200 million people and killing around 75,000. Moreover, the number and severity of disasters are increasing.  To cope with these challenges, governments spend vast amounts of money in acquiring products and services. For example, the US Federal government spent over $20 billion for supplies needed for Hurricane Katrina, and so far, it has committed over $245 billion in acquisitions related to the Covid-19 pandemic.

During disaster relief operations, procurement can be a complex and uncertain activity, and there is ample reporting of failures.  A report by the US Senate Committee on Homeland Security and Governmental Affairs examined contracts awarded by Federal Emergency Management Agency (FEMA) during the response to the 2017 hurricane season.  The report reveals major shortcomings, such as the failure to adequately use pre-positioned contracts, the award of contracts without adequate vetting, inadequacies of the bidding process, and failures of suppliers to deliver.  

While disaster relief operations have similarities with commercial operations, there are notable differences concerning speed of response, uncertainty of supply and demand, and stakeholder’s goals.  These differences call for unique capabilities in terms of logistics – to ensure timely delivery – and procurement – to ensure efficient and effective contracting.  Despite the importance of both logistics and procurement in this context, research has tended to focus on logistical challenges. Much less attention has been placed on procurement, with some notable exceptions.  A review of the disaster management literature shows that out of 268 papers, only nine dealt with procurement, emphasizing the paucity of research into procurement in disaster relief. In the public administration literature, researchers have also noted that emergency procurement has been neglected and that more research is needed.  To frame our research, we take a multidisciplinary perspective drawing from the fields of operations management, disaster management, and public administration.

This research focuses on procurement during relief operations by investigating the use of contracts by US federal agencies during national emergencies.  The research focuses on the choice of contract type, which is an established dilemma in procurement.  Different contract types offer buyers and sellers a different balance of risks and rewards, and debate continues about their effectiveness under varying circumstances.  Thus, it is important to investigate the factors that influence the choice by federal agencies between cost-reimbursement contracts and fixed-price contracts as disaster relief operations unfold. 

Three key stages characterize disaster relief operations: preparation, response, and recovery. Each stage presents vastly different operational conditions. The response stage, in the immediate aftermath of a disaster, is particularly distinctive due to increased uncertainty, market disequilibrium, pronounced information asymmetries, and extreme time pressure; differences that increase the government’s risk exposure. For instance, the CARES Act, launched in response to the Covid-19 Pandemic, immediately attracted the attention of unscrupulous suppliers. Despite the differences across disaster stages, the dearth of research spanning across all stages has thus far prevented the evaluation of the factors influencing contracting practices. This study addresses this research gap by investigating how the type of acquisition and the amount of spend affect the choice of contract type. Furthermore, we examine how the disaster stage moderates these relationships, with a particular focus on the response stage, which presents the most extreme conditions.

Drawing from agency theory and the theory of regulatory capture, we investigate the choice of contract type in a setting that combines high uncertainty (which creates information asymmetries, adverse selection, moral hazard, and opportunism), and the need for speed and flexibility (which exacerbates problems of bounded rationality, supplier availability, and adverse selection).  Agency theory brings an economic perspective to the choice of contract type dilemma, as it seeks to determine the most efficient contract, given conditions of goal conflict, opportunism, information asymmetry, bounded rationality, risk aversion, and self-interest.  The theory of regulatory capture brings a public-private relationship perspective, arguing that private organizations can advance their interests by gaining influence over government agencies, often at the expense of the public interest.  It has been noted that in the aftermath of disasters, it is not uncommon to find corrupt suppliers exploiting the situation. 

The research relies on data made available by the US government, including all contracts deployed by federal agencies to support disaster-relief operations between 2005 and 2016, including 47,560 contracts across 14 disasters.  We evaluate the role of two key factors underpinning the choice of contract type during disasters, namely the type of acquisition and the amount of spend.

Our results indicate a positive association between contract spend and the likelihood of choosing a cost-reimbursement contract, which has significant implications for policymakers and practitioners because it indicates a higher risk exposure for government agencies in larger contracts.  Spend thresholds stipulated within FAR are intended to mitigate this type of risk, but since these thresholds are relaxed during disasters, government agencies become more exposed by accepting risk for the sake of expediency. However, federal agencies continue to have a fiduciary responsibility, which falls into the hands of contracting officers. Thus, both capacity (i.e., availability) and capability (i.e., knowledge and skills) of contracting officers are central to effective disaster response.  This emphasizes the importance of human resource aspects of public procurement. 

For contracting officers, the positive relationship between contract spend and cost-reimbursement contracts emphasizes the importance of contracting efforts in advance of a disaster, when they have more time to evaluate suppliers and negotiate contracts.  Pre-arrangements could thus help mitigate opportunistic behavior. Policy guidelines under FAR make pre-established arrangements available to government officials, and researchers have reported on their effectiveness. For example, in 2019, the Army Corp of Engineers established a $999 million advance joint venture agreement with six contractors to provide time-sensitive disaster support to repair critical infrastructure such as roads, bridges, electric distribution systems.

Our finding that cost-reimbursement arrangements are more prevalent in services contracting, particularly during the response stage, appears to be generally beneficial to suppliers, as they assume less risk and can concentrate on delivering the expected outputs from the contract without particular concern for costs.  For the government, this represents an increased risk, and contracting offices must remain vigilant and act when suppliers fail to fulfill their duties.  Potential suppliers should be mindful that cost-reimbursement contracts can involve additional monitoring costs. For federal agencies, this stresses the importance of having quick and easy onboarding as well as monitoring processes for suppliers of services in disaster situations.  Furthermore, it is important that contracting officers maintain open communications channels with suppliers and use supplier forums to allow suppliers to provide feedback on the suitability of contract types and other aspects of relief operations.

The negative moderation of response stage as spend increases means that there is a preference for fixed-price contracts involving large monetary value during the response stage when compared to other stages.  This appears to be positive news for the government, as it allows prioritizing speed over the fear of opportunism when dealing with large contracts.  However, this result does not imply that contracting officers can let down their guard against opportunistic suppliers.  While fixed-price contracts might help mitigate some risks for government agencies, it is still possible for opportunistic suppliers to take advantage of disaster situations. Therefore, government agencies should continue to maintain transparency and fairness of the procurement process before, during, and after the award. Moreover, drawbacks associated with fixed-price contracts, such as limited flexibility, potentially poor quality, and the possibility of supplier opportunism, should be taken into consideration.  For example, in 2009, FEMA reached a $4 million settlement with a supplier who failed to deliver on a contract to build and operate a base camp for first responders during Hurricane Katrina.  It is also important to consider efforts during the preparation stage to maintain the supply base for categories involving large acquisitions to preserve competition among prospective suppliers.

Source: Mena, C., Nair, A. U.S. Federal Government Contracting for Disaster Management. Working paper.

Risk Management Infrastructure and Information Exchange for Managing Disruptions During Surgeries

 

In a research study we examine the impact of magnitude and likelihood of disruptions on surgical procedure performance. More importantly, we investigate the moderating role played by information exchange and risk management infrastructure in mitigating the negative effect of disruption on performance.

A nationwide multi-respondent survey was administered to operating room personnel to collect information on their experiences with disruptions experienced in surgeries. The survey data is analyzed to examine the relationship between operational disruptions and procedure performance. Additionally, the moderating roles of risk management infrastructure and information exchange on the relationship between disruptions and performance are investigated. The results obtained from the empirical analysis are validated using data from an ethnographic investigation of surgeries at a major hospital.

The results show that both the magnitude and the likelihood of a disruption adversely impacts procedure performance. Interestingly, we find that risk management infrastructure and information exchange play different roles in mitigating the effect of disruptions on performance. We find that while risk management infrastructure helps mitigate the effect of magnitude of service disruptions, information exchange helps reduce the effects of likelihood of disruptions. The findings lend strong support to our theoretical assertions. By means of the participant-observer data collected from over 100 surgeries as part of the ethnographic investigation, we validate our key findings. Our findings suggest that disruptions are common occurrences in surgical settings, but their performance impact may be lessened or altogether avoided with the proper information and risk management mechanisms in place.

This survey research extends our understanding of risk management by considering a context that is highly prone to disruptions. We adopt existing constructs pertaining to supply chain disruptions within this context and find new insights. The findings of our study show differential roles played by information exchange and risk management infrastructure in mitigating disruptions. This nuanced understanding provides directions for aligning efforts towards risk mitigation in surgical settings in a more focused way. This study supplements findings from survey data analysis with an examination of data collected by means of ethnographic investigation.

Our study provides insights to practitioners to lower the number of disruptions, thus improving quality and lowering costs. Managers in other industries that often work in IATs may find the results applicable to their context. Many organizations are looking to lower their risk of disruption, and this research can help them better understand how their organization may be responding to disruptions. From the controls, we learn that operating room (OR) location influences performance. Inpatient rooms are typically larger, and more comfortable for everyone present. Hospitals may explore investments in adopting more flexible outpatient rooms or different layouts, such that the space the equipment utilizes in the room is minimized. OR personnel should be made aware that the disruptions increase the length of episodes of care and in-turn impact performance. This knowledge may help guide healthcare workers actions to better ensure a smooth experience by thinking ahead and anticipating the needs of others in the room. Additionally, experience matter. Thus, educating those in the OR department concerning the behaviors that lower or increase the risk of disruptions in acute episodes of care, a hospital may experience lower costs and less waste while saving time. In turn, this could increase the quality of results and the satisfaction of patients and team members.

To begin, a hospital's OR department or risk management department may want to develop business continuity plans by exploring the Disruption in Surgery Index  and map their disruption items. This will begin to help one understand the consequences of an episode of care disruption and provide the means to focus on the most detrimental disruptions first. This exercise will allow resources to be used efficiently to begin mitigating and building resilience for future disruptions. This awareness could lead to policies that attempt to sequester an OR team so they are not interrupted by outsiders during an episode of care. These efforts, along with the suggestions in this research, should be part of a broader conversation around business continuity planning within the OR.

Hospitals and their OR departments should look to increase their levels of information exchange to help maintain a high level of procedure performance. This could be done through training, promoting psychological safety within teams, and building long-standing relationships to create stronger bonds among team members. Additionally, formalized information sharing processes could be introduced throughout a procedure, like the pre-procedure "time-out" discussion where a surgical team ensures one more time that the right patient is receiving the correct procedure on the proper part of their body. These formalized processes ensure that different members of the team are heard, thus increasing informational independence and information distribution. Furthermore, as mentioned in the previous section, awareness by personnel of when it is appropriate to communicate is critical. Through education and experience, healthcare personnel can learn to minimize discussions during routine work, so that disruption risk remains low. Alternatively, they should learn to increase communication during higher disruption risk moments in an episode of care.

Investments in risk management infrastructure will benefit hospitals struggling with high magnitude disruptions, such as COVID-19. Risk management infrastructure further creates a more open environment by offering information to team members that may help prevent a disruption. However, this infrastructure should not solely rely on technological solutions, as "technology overload" may occur. These early warning systems may stem from pre-defined processes such as the pre-procedure "time-out", hardware or software installed in the surgical suite that alerts personnel to a potential issue, or training that discusses methods of analyzing risks and managing them, possibly through what-if scenarios. As mentioned in the previous section, low-cost solutions that provide signals to others, such as notes on doors, can have positive impacts on procedure performance. Additionally, inside the surgical suite, a better design which builds risk management infrastructure into each element will help promote a disruption-free area. These design elements may include basic signage to alert others to important matters. It may also include audible alarms, fire suppression, air filtration systems, and tools adapted to reduce user fatigue and errors. In summary, efforts to promote information exchange and resilience through risk management infrastructure will yield positive procedural outcomes.

Finally, norms of information exchange and risk management infrastructure touch upon the strategies identified from eight HRO frameworks currently being used by healthcare entities. These strategies include developing leadership, data systems, implementing interventions, training and learning, and a safety culture. As healthcare leaders continue to work towards becoming HROs, they should focus on these two constructs to help get them there. Beyond healthcare, consulting firms experience similar challenges using interdisciplinary teams, which quickly form to achieve a task for a customer. They may benefit from enacting these strategies to ensure better outcomes for their customers. It cannot be understated how difficult it may be to change the norms of information exchange. This takes time. In contrast, the implementation of some risk management infrastructure may cost more upfront, but the benefits may occur more quickly.

Source: Dreyfus, D., Nair, A. Impact of Disruptions on Performance in Acute Episodes of Care: Moderating Role of Information Exchange and Risk Management Infrastructure. Working paper.

External auditors and certification bodies of ISO 9001

 

In a research study my co-authors and I seek to advance the knowledge on ISO 9001 implementation by examining two research issues. First, we investigate the relationship between external auditors, certification bodies, and the operational and market-oriented outcomes from the ISO 9001 certification. Second, we study the different roles played by external auditors and certification bodies in affecting the outcomes achieved from the quality of implementation of the standard. Using a dataset comprising of 537 firms from Australia and New Zealand that are ISO 9001 certified, our findings show that the quality of external auditors enhances operational outcomes as well as strengthens the relationship between ISO 9001 implementation and operational outcomes. This affirms the role of external auditors in the implementation of the standard. On the other hand, the reputation of certification bodies has a positive direct effect on market-oriented outcome, and its effect is strengthened by the quality of ISO 9001 implementation. The findings, therefore, show the contrasting roles between external auditors and certification bodies in enhancing different outcomes of ISO 9001 adoption in terms of operational and market-oriented ones.

There are a number of practical implications drawn from the findings. First, our study confirms once again that quality implementation is the key determinant of the operational outcomes of ISO 9001 adoption. At the same time, however, the findings also confirm the important role of external auditors in enhancing the effect of implementation on the operational outcome from ISO 9001 standard. This result is instructive in that it is the quality of auditors rather than the reputation of certification bodies that help firms in gaining the operational outcomes. For many firms, however, this finding could raise a practical problem: how to find good auditors? The answer to this question is not straightforward because, unlike certification bodies who have certain brand equity, auditors are employed by certification bodies and their quality is somewhat hidden from the customers and is only revealed after they are engaged after the ISO 9001 certification is over. Indeed, this problem is exacerbated by the fact that firms cannot simply resort to reputable certification bodies in order to find good auditors. The positive correlations between quality of auditors and reputable certification bodies only show a medium strength and, hence, this does not provide a strong assurance that reputable certification bodies will always send quality auditors. Therefore, while engaging reputable certification bodies is recommended, firms should request that they are served by experienced and quality external auditors whose characteristics are partly captured in this study. At the same time, however, the findings also infer that high quality auditors are not necessarily always employed by reputable certification bodies; they could also be part of less reputable certification bodies. In this regard, our findings also provide a ray of hope for firms who cannot afford to engage reputable certification bodies that normally charge higher costs than their counterparts. In particular, smaller firms with limited resources still have a chance to engage high quality auditors and to benefit from their services.

Our findings show that the reputation of certification bodies (rather than the quality of external auditors) helps firms improve their market-oriented outcome, including broadening their market scope and winning more customers. This finding suggests that customers still rely on “brand image” of reputable certification bodies. Customers perceive ISO 9001 certifications issued by reputable certification bodies to be of higher value than others. While this may be true to a certain extent, it is important to balance this notion with our finding, which shows that certification bodies do not have a direct positive effect on operational outcomes. Instead, firms ought to seek high quality ISO 9001 implementations that are then vetted by high quality auditors so as to obtain operational outcomes. The operational outcomes in turn exert a positive effect on market performance. This result therefore sends a strong message to firms that are trying to attain market-oriented outcomes solely from compliance to the standard’s requirements without internalizing the implementation process. More importantly, since it is operational outcomes that are mainly desired by customers (rather than the certification), simply signaling high quality ISO 9001 implementation by tapping into the reputation of certification bodies could be a misleading strategy to gain market-oriented outcome.

Source: Prajogo, D., Nair, A., Castka, P. 2022. The effects of external auditors and certification bodies on the operational and market oriented outcomes of ISO 9001 implementation. IEEE Transactions on Engineering Management. (Forthcoming).

Consignment Inventory Management for General and Physician Preference Medical Supplies

In healthcare, the largest cost after labor is represented by medical devices and materials. Recent estimates indicate that medical supplies will outpace labor as the largest expense for hospitals and health systems. The number and criticality of healthcare medical supplies can vary greatly, and factors such as physician involvement in supply selections adds complexity to the supply chain. In general, we can categorize hospital supplies as general medical supplies (GEN) and what are called physician preference (PP) items. Most items purchased by a hospital are typically GEN items, and include items such as syringes, gloves, or IV solutions to name a few. In contrast, PP items are supplies which physicians believe will have a signi􏰂cant impact on patient care or quality of life. Supplies such as orthopaedic implants and pacemakers are examples of PP items. Physician preference items are some of the most expensive items in hospitals. Studies have noted that PPIs can represent up to 61% of total cost of purchases.

In the case of GEN items, hospital purchasing groups can easily consolidate volume for these items to negotiate pricing from a particular vendor. In contrast, PP items are marketed directly to physicians who make the final purchasing regarding device and therefore vendor to adopt. As a result, it is common for hospitals to source the same PP from several different vendors in order to satisfy the preferences of the different physicians practicing in the hospital. This practice hinders the ability to consolidate volume in order to negotiate better pricing for PP items. Given the limited options purchasing groups have in order to reduce the cost burden of PP items, hospitals have increasingly looked for other ways to reduce the cost of carrying PP items in their facilities. One of the ways in which hospitals seek to reduce inventory cost of PP items is by the use of consignment agreements.

Under a consignment agreement the hospital physically stores inventory while the vendor keeps ownership of the inventory stored at the hospital. Once the inventory is used, the vendor receives payment for the units consumed, typically one or two months after product consumption. 

The use of consignment agreements allows hospitals to reduce inventory costs without sacrificing product availability and quality. Hospitals benefit from consignment agreements due to decreased capital tied up to inventory as well as delayed payment. As a result, under consignment hospitals do not carry any cost of capital, but still incur the cost of inventory storage as well as costs related to damaged, missing, and in some cases obsolete items.

Under consignment the vendor is typically responsible for delivering inventory to the hospital according to pre-specified order amounts set by hospital management. The vendor is typically also responsible to respond to any surges in demand in order to avoid product stockouts incurring any resulting costs. Since the vendor keeps ownership of the inventory while it is stored at the hospital, the vendor carries the cost of capital associated with holding inventory at the hospital warehouse. As a result, the vendor experiences an increase in inventory costs as well as a delay in payment making the use of consignment less attractive. The vendor will not agree to such agreement unless a profit sharing contract is in place. Typically vendors will be motivated to enter into a consignment agreement under one of two conditions, increased product per unit cost or increased purchase volume. By either increasing the unit cost or capturing a higher share of hospital demand, the vendor can increase its profits in order to mitigate the increased costs of having a product under consignment.

While consignment agreements can provide significant benefits to the hospital, not all products can be managed using consignment. Consignment agreements need to be carefully negotiated such that both partners may obtain financial benefits. Items under consignment need to be carefully monitored to capture usage that triggers payments to the vendor. Lack of proper oversight of consignment stock in hospitals may result in higher rates of product shrinkage and obsolescence. In some cases vendors do not offer the option to use consignment or the added complexity doesn't justify the use of consignment for a particular item. As a result, hospital management is typically interested in using consignment agreements for items that represent a significant amount of spending. Items that fall into this category are typically PP items or high volume GEN items. %PP items tend to be expensive items with relatively low demand volume and high demand fluctuations. In contrast GEN items tend to be more generic, less expensive, required in higher amounts and exhibit less variability in demand as compared to PP items.

In a study we collaborated with a large teaching and research hospital located in the midwestern United States. The hospital is a level 2 trauma center with over 600 beds and an average annual spending of over $17 million dollars in medical supplies. We obtained detailed monthly spending data for the top 3000 items purchased for a span of six years. Hospital management was interested in understanding the relative cost of managing inventories of GEN and PP items in-house as compared to the consignment option offered by vendors. Furthermore, guidance on the type of item that could benefit the most from the use of a consignment agreement was of interest. We present mathematical models that capture the comparative cost of using in-house and consignment inventory for GEN and PP items. To understand the implications of different consignment agreements, we consider the cases when the vendor charges higher per unit price as well as when the vendor expects higher purchase volume. Based on information provided by hospital personnel as well as current literature we study the financial effect of disregarding the increased complexity of managing consignment stock that may result in unforeseen inventory costs, and analyze its impact on GEN and PP items.

We find that although hospitals will enter into a consignment agreement mostly for financial reasons, disregarding a potential increase in inventory costs will affect GEN and PP items differently. Furthermore, the effect of increased inventory costs will affect GEN and PP items in different ways depending on the type of contract used, price increase or volume increase. This allows us to gain insights into the type of consignment contract that is most beneficial to the hospital depending on whether GEN or PP items are considered. We validate our findings using hospital data and provide practical insights for hospital management to aid in the selection of medical supplies that should be managed under consignment to maximize financial benefits.

Implications:

CS agreements are used by hospitals seeking to reduce the cost of keeping and managing medical supplies. The use of CS is typically seen as a way to reduce overall inventory costs for items such as high-cost physician preferred items or high-volume general medical supplies. The use of CS can bring financial benefits when its overall impact is properly understood and accounted for. On the contrary, when hospital management disregards the potential impact of the use of CS on factors such as obsolescence, lost or damaged goods, as well as maintenance costs, savings may not be perceived. Empirical data obtained for this study corroborates the fact that contrary to what hospital management may expect, hospitals may not experience a decrease in overall inventory costs as a result of the use of consignment particularly for PP items. Hospitals manage a wide range of products, which necessitate a careful consideration of inventory management policies based on their underlying characteristics. Contrary to the expectation that CS will result in lower expenses for PP items than if these items are maintained in inventory, the results from the analyses of empirical data suggest that healthcare organizations are not obtaining cost savings for PP items maintained as CS. On the other hand, GEN items benefit from the use of consignment based inventory policies. These preliminary findings formed the basis for a closer examination of the underlying mechanisms at work.

Extant literature in healthcare has indicated that PP items hold the greatest potential for savings in hospitals by involving physicians and surgeons in standardization and utilization management decisions such that they take into consideration the cost of the supplies along with their experience with the product, quality of the item, and their relationship with manufacturer representative. We agree with this direction but also recognize some of the structural issues that limit the ability of supply chain managers to get physicians and surgeons on board with regards to product standardization and utilization management. Many of these reasons, such as whether the physician/surgeon is an employee of the hospital system, are beyond the control of supply chain managers in a healthcare organization. Our study focuses on aspects that are within the purview of healthcare supply chain managers and offer directions to strengthen their ability to structure favorable CS agreements with vendors for PP and GEN items.

The mathematical models developed and analyzed in this paper capture typical CS contract conditions, increased per-unit price and increased purchase volume. Using our models we study the effect of increased shrinkage rates on overall inventory costs as a result of the use of consignment. We show that each type of contract, increased per-unit price or increased purchase volume, will affect overall inventory costs differently depending on whether general medical supplies or physician preferred items are stored. In the absence of data to determine the impact of the use of consignment on shrinkage and maintenance costs, we prove that independent of the inventory policy used, an increased volume contract can lessen the negative effects of an unforeseen increase in consignment costs.

Our theoretical results highlight the implications of disregarding additional shrinkage and maintenance inventory costs associated with CS and show that the implications will differ based on the underlying demand pattern of the product under consideration. The lack of information pertaining to higher inventory shrinkage and maintenance levels can still enable hospitals to gain the advantages commonly attributed to the consignment agreement for GEN items. However, ignoring these costs for PP items can result in unfavorable contract conditions that could result in higher costs. Since hospitals typically do not have a good understanding of these hidden costs associated with consignment agreements, we assert that hospitals might be encountering higher costs for PP items that are being managed as CS therefore reducing the financial benefit they could obtain from CS. Future studies that consider data from multiple hospital systems could build on this preliminary insight.

Our results also point to conditions when supply chain managers might enter into a CS contractual agreement that involves unfavorable demand allocation. For products characterized by high variability and high per unit cost, the demand allocations under CS contractual agreements tend to be unfavorable and can therefore result in higher costs. PP items typically have high variability and high per unit cost, which necessitate greater care in determining appropriate demand allocations when a hospital is consolidating across multiple items and negotiation contracts with vendors. Demand allocations can also be unfavorable for products that have high variability and high demand, irrespective of their cost. Once again, these are also more likely to be PP items but some GEN items can also have these characteristics. Future empirical studies that classify healthcare supplies in terms of their average demand, variability of demand and per unit cost could shed further light into our theoretical prediction.

Our study has few limitations that are worth noting. The empirical data was obtained from one hospital; hence, we do not claim the generalizability of the empirical findings. Additional research is needed, however, our empirical results coupled with the analytical models provide a good foundation for future research studies to build on. The analytical models are constrained in terms of its focus on only hospital's decisions. Future studies should consider a game-theoretic framework to obtain equilibrium conditions for the hospital and the vendor when they are engaged in negotiations for CS contracts for PP items and GEN items. Finally, in our analytical model we assume that a hospital will be able to allocate demand between two vendors such that they can increase their purchase volume from the vendor with lower per unit cost. Future studies can account for potential objection for this reallocation by physicians/surgeons by considering an additional cost parameter.

Source: Rosales, C., Nair, A., Pal, S. "Managing General and Physician Preference Medical Supplies with In-stock versus Consignment-Stock Inventory Policies: An Empirically-Grounded Analytical Investigation. Working paper.

Supply chain integration for improving performance of not-for-profit organizations

Food banks are not-for-profit organizations that aim to alleviate the hunger problem in the society by working with donors on the upstream and member agencies on the downstream of their supply chains. These organizations operate in highly complex environments due to the uncertainties associated with supply and demand. In order to cope with the uncertainty and to be able to deliver food to the underserved communities, food banks need to utilize information and coordinate well with their partners so that the donations can be matched with demand in a timely manner.Therefore, effective and efficient supply chain management approaches become critical in this resource-constrained setting, where it is unknown which resources are available. Based on what we know from the previous research on for-profit firms, and given the complexity of food bank supply chains along with the necessity of food banks to work with partner firms, it is natural to contend that supply chain integration is a key determinant of performance. Exactly how the constituent parts of supply chain integration relate to each other in humanitarian organizations, however, is an open research question. Three common integration dimensions that have been investigated in the supply chain management literature include internal integration, demand integration and supply integration. Demand integration and supply integration are also referred to as external integration in some studies. Collaboration between functions and information sharing processes within an organization determines the internal integration. Some indicators of internal integration in the literature include intra-firm functional team activities between functions, such as operations, marketing and logistics, to achieve the goals of the supply chain. Moreover, demand integration relates to the collaboration activities and information sharing with key customers to meet their expectations and improve supply chain performance. Similarly, supply integration involves coordination activities as well as information sharing with key suppliers to achieve supply chain performance by enabling better planning, forecasting and process design. We study the three key dimensions of supply chain integration – supply integration, demand integration and internal integration and empirically examine how each is related to the others and how they impact food banks’ ability to create basic programs that help in delivering food to the underserved communities.

 

 

Identifying Holistic Patterns for Operations and Supply Chain Management

Identification of holistic patterns is crucial when studying several pertinent Operations and Supply Chain Management (O&SCM) issues. If we view each business practice as a single node, then a firm’s overall operation can be conceived as a system of interconnected nodes. The abundance of business practices and the complex interactions among them present challenges in detecting ways by which firms can attain competitive advantage. This challenge is further accentuated by the fact that it may not be a single business practice, but the configuration of a set of practices that drives firm performance. Firms grapple with ways to transform themselves into high-performing organizations. How do high-performing firms differ from low-performing firms? Specifically, how do these firms differ in the amount of connectivity among practices? Which practices are central to a high performing firm? What configurations of practices are salient in high-performing firms but not in low-performing firms? Answers to these questions pinpoint the core strengths of a high-performing firm and provide guidelines to align a firm’s investment with the target areas for improvement. Finding empirical answers to the above questions is a challenging task. One difficulty is caused by the lack of observations to properly model the complex interactions among a large list of variables. Because firms operate as complex systems made up of copious interconnected business practices, to properly model these business practices we need to analyze datasets that have high dimensions (i.e., containing a large number of variables). However, in order to analyze a high-dimensional dataset, the conventional data analysis methods require a large sample size. Ironically, O&SCM research has historically faced the issue of low response rate, leading to low number of empirical observations. This lack of sufficient sample size is especially problematic when examining complex relationships among a wide range of variables in searching for the right configurations of capabilities. Thus, it is critical to find a technique that can work with a relatively small sample size and still be able to derive meaningful business insights from a high-dimensional dataset. Another problem with small sample size is that it is often sensitive to violations of the normal distribution assumption. This violation of normality assumption is common in empirical datasets and is more problematic in small samples. Therefore, it is important to find a tool that is robust against violation of normality, or to provide a remedy that overcomes this challenge. In a study we use the Sparse Inverse Covariance Estimation (SICE) method, in conjunction with bootstrapping technique, to address the above problems.

 

Technical issue resolution in open-source software development projects

Open source software (OSS) development platform is one of the most popular software development environments that organizations use to source high quality information system products. For example, the most popular open source product, the Linux kernel powers world’s largest stock exchanges; and Apache, the most popular web server was developed in open source platform, powers 52% of all websites globally. Projects are increasingly being conducted in OSS platform due to increased interest from the organizations. For example, major IT companies including Google, Microsoft and Facebook have increased their reliance on software development initiatives on OSS platforms . These developments have important implications for service operations management, particularly in terms of how projects should be managed within these contexts. OSS provides an Internet based virtual community-like software development venue where software developers collaborate voluntarily toward the goal of developing unique information system products. Such voluntary participation is important for sustainability of the OSS projects as inadequate participation has resulted in 80% of the OSS projects being canceled in the development phase. OSS developers stay motivated to participate in OSS because they enjoy the coding process and value the sense of unity with fellow developers while interacting in the software development project.

Traditional software development in firms differs from OSS development in three important ways: first, for OSS development volunteers the source of motivation is different than pay or career incentives; second, the lack of formal governance structure in a OSS development team excludes managers from exerting project control mechanisms; and third, in contrast to traditional software development, the ability of volunteers to coordinate work among OSS developers is contingent on effective information exchange over the Internet. To that extent, OSS platforms have been created that facilitate information exchanges among project members by means of mailing list or thread communications relating to a software code. However, the effect of increased interaction among members in unregulated virtual environment on project performance in terms of its quality and service delivery is unclear. A lack of synchronous interactions in virtual software development environment may weaken flow of information which may, in turn, impact project performance adversely. Higher interactions present teams with increased overhead which lowers team productivity. However, interactions among team members help members to self-regulate to distribute project activities and enhance productivity.

It seems that some form of interaction in self-regulated OSS teams is necessary for efficient information flow within team and to keep members motivated. On the other hand, beyond a certain threshold it may bring in overload to weigh down team performance. Communication frequency in a cross-functional team in traditional projects may have a curvilinear relationship with project goal achievement. Given the increasingly virtual nature of project management and its implications for operations management, it is important to understand how team member interactions related to performance in projects that are not governed within the traditional project context. To the best of our knowledge, no previous empirical work has considered how team member interactions influence project performance in alternative project context such as OSS development that are characterized by their virtual setting and voluntary participation by team members. The first research objective of this study is to address this gap.

Proactive planning for problem resolution in the traditional software development context is challenging. Given the additional complexities of self-regulated OSS teams including, but not limited to, absence of governance structure in a team, independence of members to contribute to projects, geographical and cultural dispersion of volunteers and keeping volunteers motivated in project activities without traditional incentive mechanisms, proactive project management is even more challenging for a project manager responsible for an OSS development initiative. Traditional project management process, which allows physical interaction among members and offers associated visual cues for managing projects, will fall short in the case of open-source projects. Virtual project venues and online knowledge communities, such as OSS platforms, further accentuate these challenges since team members do not interact in person with each other.

 
To enforce project control, managers of OSS projects often engage actively in discussion threads to remove information asymmetry involving team activities. Such participation helps project team members to access critical knowledge resources that generally much experienced managers bring along. Project managers exploit their connection to other projects to bring critical knowledge resources that enhance project performance. In the OSS development context, as managers are unable to pick up visual and verbal cues, active participation in project discussions becomes all the more important. However, we do not know how self-guided OSS development teams respond to such project control mechanism. Additionally, participation increases information processing overload for team members. Understanding the impact of project managers’ active participation in OSS projects on project performance is relatively understudied and forms the forms the basis for the second research objective of our study.

Project manager’s active participation may not only directly affect project performance but may also affect performance by influencing team member interactions. Effective and efficient ways of enabling information exchanges within team have been a cornerstone of project management research. With decreasing performance the motivation of project members, the glue that binds them to OSS platform, starts to wane and OSS projects may see higher dropouts. Inadequate participation has resulted in 80% of the OSS projects being canceled in the development phase. Project manager’s active participation may help with establishing formal structural coordination mechanisms in OSS development projects, thereby enabling participants and projects to reach their goals. Enforcement of process structure by means of effective project management in virtual software development context can alleviate conflict and enhance performance. The importance of project managers’ active participation in managing team interaction in a self-organizing OSS team structure is notably understudied and warrants research attention. Our third research objective aims at contributing to this need for further research.

We draw on social network theory and task familiarity literature to guide our research. Social network theory posits that ties among entities in a network generate social capital that translates to performance. We use this theoretical lens to understand the impact of team member interactions in a project network on project performance. To examine this relationship, we consider project team member interaction networks for 1842 open-source software development projects on the GitHub platform. For each of these projects we collect panel data that include evolving network measures and other project characteristics for two years (104 weeks) from the time of project initiation. Specifically, within each week we consider the project team member interaction network formed by actual comments and replies by software developers in response to an open issues and pull requests for these projects. Open issues refer to bugs reported in the software bugs management system of OSS platforms such as GitHub. Project members work toward resolution of these bugs by making necessary code changes. The changed codes are then merged in the source code by issuing pull requests.

We draw on task familiarity literature to explain how project manager’s active participation impacts project performance. Task familiarity literature suggests that familiarity with team member activities enables the manager to be aware of the flow of information in the project, which enables effective project management. We build on this reasoning to study the impact of manager participation in the OSS context. To study the relationship, we collect data on project manager’s participation in the network formed by team member interactions in response to the open issues and pull requests. In the GitHub platform closing an open issue is an indicator of completion of a specific project task. We consider the number of closed issues in a given week as our dependent variable and examine how this performance measure is impacted by the direct and interaction effects of network characteristics of team interaction and project manager’s active participation.
The results obtained from analyzing 133,023 observations of unbalanced dynamic panel show that as the density of the network formed by communication instances among project team members increase, the number of weekly closed issues in an OSS project initially increase but then decrease. We find that project manager’s degree centrality in the team interaction network has a direct effect of increasing the number of weekly closed issues as well as a moderating effect of flattening the curvilinear relationship between team interaction and weekly issue closure rate. In essence, project manager’s active participation alleviates the reduction in weekly issue closure rate once the density of team interaction goes beyond the inflection point.

Source: Pal, S., Nair, A., Zhou, Z. XXXX. Managing Projects in Virtual Settings: Information Exchange Networks and Project Performance. Journal of Operations Management.

COVID-19 Testing - Some reflections on assigning swabs to labs and segmenting patients

Testing is one of the most effective lever in managing pandemics. The recent experience of Coronavirus disease 2019 (COVID-19) is a case in point where the disease was first reported in December 2019 in Wuhan, China and since then it had spread across the world. As a measure to address this pandemic, testing helped with keeping track of the status of the disease and in planning for other measures such as stay-at-home orders. The need for accelerated testing along with social distancing was soon felt to control the outbreak of infections. "Americans need access to rapid diagnostic testing. The sooner clinicians, patients, and public health officials know whether someone is infected with the novel coronavirus, the sooner they can take action to mitigate the spread of COVID-19," said the Director of Biomedical Advanced Research and Development Authority, Department of Health and Human Services' Office. Hence, both building testing capacity via augmenting capacity at public and private laboratories (labs), and improving speed of obtaining test results are critical for early testing, diagnosis, and patient's path to recovery. In our research we examine how to manage testing strategies by accounting both human-behavior and testing-site specific factors. In particular, human-behavior related factors include social interactions vs isolation during the waiting times. Healthcare policy makers can leverage our research insights in developing testing guidelines, which would enable rapid response to swab processing. We consider testing site factors such as type of swab analysis site (public vs. private), relative analysis capacity, distance between collection and testing sites. In addition, the results of this study are instrumental to control the spread of infections during pandemics.

As the cases grew, state governors responded with multiple mechanisms to enhance testing capacity such as augmenting capacity at public and private labs. Private labs typically possess greater testing capacity due to high degree of process automation. Hence, demand allocation decision between private and public labs could be an lever for effectively managing testing capacity, speedy testing and containing the disease spread, which results in maximizing the number of people recoveries.

Typically, treatment for a pandemic is not immediately available to all patients; hence, early diagnosis and then quarantine is the best known strategy to control the spread of diseases. This approach was followed globally during the recent COVID-19 pandemic. Early diagnosis necessitates the efficient management of the limited testing availability. In an effort to address the testing requirements, the United States has authorized their public labs (operated by local government) and private labs (operated by private companies including pharmacies and medical practices or not-for-profit organizations) to undertake manual, semi-automated and automated testing for COVID-19. In addition, drive-through sampling facilities and mobile testing units are also put in place that prioritize sampling for symptomatic individuals that are part of the highest risk population, such as those who have been in close contact with a positive case, health care workers, nursing home employees, and first responders on the front lines. These drive-through testing sites help reduce density and the potential for spread by keeping people who are sick or at risk of having contracted Coronavirus out of healthcare facilities. This system of labs creates a diagnosis network that has similarities to early infant diagnosis (EID)/network (EIN) that has received some research attention.

Considering the case of COVID-19, we note that the testing process forms an important part of patient flow. A typical flow of patients that begins from the onset of COVID-19 symptoms until the post-hospitalization stage (in the event of getting infected) is shown in the figure below. In the event of suspicion of COVID-19, the patients consult with primary care physicians. Based on the patient symptoms and the Centers for Disease Control and Prevention (CDC) guidelines, physicians recommend to perform a COVID-19 test on the patient. The physicians can also categorize the potential state of the disease (mild, moderate and severe) by combining the patient's symptoms and medical history. After the swabs from the patients are collected, the swabs become the flow unit through the remainder of the process. Depending on the stage of disease, the patients' swabs are directed to either public or private analysis sites for further investigation. The transit time involved in collecting the test swab, batch preparation, and transporting the swab varies depending on the type of lab. Typically, it may take more than 48 hours for the swab to reach the large private analysis sites. Depending on the backlogs and capacity at the swab analysis site (lab), the test batch samples may wait for analysis. Testing delays can be significantly high, especially when the pandemic is in the initial phase and testing capacities are low. For example, in Arizona, patients report a delay of 6-8 days to receive the test analysis results. The delays in testing could be attributed to several factors such as swab analyzer capacity constraints, shortage of supplies to perform the testing etc. Once the test results are obtained, the patients are recommended to either stay at home or undergo hospitalization.

Within the outlined testing system, it is important to be cognizant of the turnaround times (TAT), which can include the time it takes for a person to reach the testing center as well as the delays from the time when the sample is drawn and the time when the results are reported. The shortening of TAT is an important metric in mitigating the spread of the virus. It helps in identifying individuals who need to be administered the necessary care to manage their disease condition. It also helps in determining individuals who need to self-quarantine to limit the spread of the virus.

The high demand on healthcare resources during the COVID-19 pandemic created a situation of scarcity. Overcrowding and associated delays resulting from the scarcity relates to the literature stream on delays in primary care. Similar to the adverse patient outcomes such as sub-optimal quality of care and increased mortality rates due to delays in the primary care context, within the testing context for the COVID-19 pandemic delays can result in higher infections, mortality rates, and low quality of care for high risk patients. Additionally, these delays also create adverse social outcome since it limits the ability to appropriately structure mechanisms to reduce the spread of the disease within communities.

In the event of pandemic, reducing infection rates ought to be prioritized. Testing delays can extend the time an infected person begins quarantine, thereby increasing the chances of infecting others. Considering the complex and stochastic nature of the influence of testing delays on infection rates, in this study, we aim to capture the marginal effect of delay in obtaining testing results on the expected number of infected patients.

One of the possible approaches to manage testing is to employ a preferential testing policy. The CDC in the US developed prioritization guidelines for testing, so that individuals likely of developing a quick infection receive early testing and diagnosis. Studies report that about 20% cases of COVID-19 are severe or critical. This characteristic of COVID-19 underscores the need for a priority-based testing to diagnose infection in the early phase of progression. The priority-based testing enables early initiation of the treatment and lowering the spread of the disease. Hence, we analyze the effect of patient priority on the volume of secondary infections.

Severe cases can experience rapid progression and exhibit the onset of acute respiratory distress syndrome. Several studies had shown the mortality rate for severe cases is higher than the mortality rate for benign cases. The need of effective testing policy is more profound for COVID-19 because undiagnosed patients could potentially infect others during the time elapsed due to delay. While it is known that an early diagnosis can help patients isolate and reduce secondary infections, how to manage segmented patients (high and low priority) to effectively control secondary infections is unclear. There are several operational strategies that control the spread of infections, such as assignment of the test swab to a public vs a private lab. Private testing labs that are typically larger may be located farther from the test swab collection site as compared to relatively smaller public labs. Further, CDC has mandated certain categories of patients be given a high priority for testing. High priority could be based on patient age, profession, or the degree of symptoms. While prioritizing certain high risk symptomatic patients seems natural, the effect of priority on the secondary infections induced by low risk symptomatic patients is unclear. We argue that delaying test results for low risk symptomatic patients (younger patients) can affect large masses through social interactions than high risk patients (older). Hence, developing an understanding of the testing priority dynamics on the overall infection volumes is crucial. This delay could be a result of prioritization policy as well as the site assignment decision.

To address the issues raised above, we attempt to answer the following research questions related to testing strategies: (i) How should the patient population be prioritized after accounting for social interactions during waiting time for testing results? (ii) Under what conditions should we prioritize the older high-risk patients over younger low-risk patients? (iii) How do different patient segments affect the site assignment decision in light of social interactions? 

We develop a stylized queuing model to analyze the two-phase testing process which includes the 1) swab collection, batching, and transport to the test analysis, and 2) waiting and processing swab analysis at the test site. We characterize the testing process parameters using evidence from the testing data obtained from public health CDC repository. A patient may exhibit different social behavior during the waiting time to obtain the test results i.e., interaction followed by isolation. We account for this social behavior using a two-phase waiting time model. We develop a closed-form expression for estimating the expected number of infected patients. Then, we leverage this model as a building block to analyze the effect of testing delays on two patient types, where one possess a testing priority over the other. As discussed earlier, prioritizing a patient class may have negative effects as patients can socialize and infect others. To analyze scenarios with social interactions between two patient types, we develop Markov chain models to estimate the testing delay distributions at the sites. As a final step, we obtain the optimal test assignment probabilities between two sites.

Our study provides implications for considering priority testing policy on expected number of secondary infections. If the patient's state of health deteriorates due to the faster progression of the disease, the time delay in testing can make a significant difference in the recovery of the patients. During the waiting time to obtain the test results, patients may continue to interact socially before getting into isolation phase. Further, different patient types exhibit difference in their social interaction pattern i.e., older patients may have a short social interaction phase compared to younger patients. Due to a highly contagious nature of COVID-19, the number of infections increase due to social interactions during testing delays. There exists an interaction heterogeneity among the young and the old patients. Since, the young patients are at low-risk, they tend to socialize and show low compliance to quarantine.

We show the impact of delayed testing of low-risk patients in the overall spread of the disease. When we consider a state-dependent arrival policy, we find that more social interactions by the low priority patients results in more testing requirements. Hence, we observe that irrespective of the proportion of high-priority patients, the FCFS testing policy is superior when compared to a threshold-based priority for the high-risk patients. Hence, it is critical to stratify patients for the preferential testing depending on the class of the patients. This is more true for coronavirus, where studies had shown that patients with underlying conditions are at a higher risk of the severe outcome.

From experimental results, we find that delaying tests for low priority patients can increase the number of secondary infections. This presents implications for policy makers to consider the likelihood of social interactions among low priority patients when a testing service is delayed. Evidence of such secondary infections were reported in popular media. CDC reported that infections among young adults may have eventually spread to older, more vulnerable high priority population. A high priority testing policy needs to account for the higher propensity of social interactions among low priority patients. In fact, a recent study published in Science uses aggregated, age-specific mobility trends from more than 10 million individuals in the United States and notes that 70% of the spread of COVID-19 can be attributed to American's aged between 20 and 49 years. Similar points are echoed by news media. For instance, Dr. John Brownstein, an epidemiologist at Boston Children's Hospital and ABC News contributor notes that, "This addresses this underlying false narrative ... that if you guard the most vulnerable, you can let the virus run rampant. If you let it run rampant in the younger age groups it will still affect the elderly and vulnerable groups." Our results indicate that a priority testing policy may not necessarily be the best approach given the nature of this disease and human tendency to interact socially.

In a scenario when an exposed person does not require testing, the preferential testing is, in fact, a better testing strategy. However, the magnitude of advantage depends of the mix of low and high priority testing proportion. If a testing site is majorly serving either low priority patients or high priority patients, the advantages of preferential testing are not significant. In this scenario (a fixed arrival rate), we also investigate to find optimal proportion of testing swab sent to public and private labs. As noted earlier, private labs are relatively larger than public labs, but they are typically located farther. The transportation time and resulting longer turnaround times have important policy implications in how high and low priority cases should be assigned to these labs. When one considers preferential testing of high priority cases, transportation times associated with shipping swabs to private labs, and social interactions among low priority patients while waiting for their test results, our findings offer some counter-intuitive insights regarding the assignment of high and low priority swabs to labs. Provided two types of lab have different capacity and transportation time, it is critical to understand the distribution of the proportion of swab batches sent to each lab. In case of preferential testing and a significant difference in transportation time, the low priority cases should be sent to the lab that is closer, contrary to our initial belief of sending low priority samples to the lab that is far. The primary reason is that the advantages of preferential testing are overshadowed by the newly generated infections due to the high mobility of low-priority patients. In case of preferential testing and a insignificant difference in transportation time, the low-priority cases should be sent to the lab with high capacity.

The proposed model also helps policy makers to jointly consider the role of transportation times and the proportion of swabs to be sent to public labs. As the ratio of transportation times to public labs versus to private labs increase, we find that the number of secondary infections (by a person while waiting for test results) increases. If policy makers plan assignment of swabs to private and public labs, greater benefits in terms of reduced infections can be attained by reducing the transportation time to public labs relative to the transportation time to private labs. 

In the U.S., public and private labs contributed to a great extent in easing the need for testing potential COVID-19 cases. Initially, public labs were the primary testing sites but this severely constrained their capacity. Given the unprecedented backlogs in public labs, after a long-drawn approval process during the initial phase (January 2020 to early March 2020) of the pandemic in U.S., private labs were authorized to perform COVID-19 testing. However, by the peak of the first wave in early April 2020, private labs were processing most of the testing requirements within U.S. With more than 85% of the testing being done by these private labs, amounting to more than 35,000 tests per day, their capacity also started to get constrained. The situation faced with regards to testing calls attention to a more systematic approach to assigning private and public labs in the event of pandemic. Our study provides some important insights into this issue.

We consider some important parameters that should play a role in assigning testing demand to available public and private lab capacities. Private labs in the U.S. have higher capacity than public labs, but they are located far from the collection sites. Hence, it is important to simultaneously account for lab capacities and transportation time. In addition to these aspects, testing cases need to consider the level of risk faced by the person seeking testing. As the testing demand rose during the initial phase of the pandemic, guidelines mandated that patients who are at high-risk and hospitalized should be given priority at the public lab. The public labs were expected to provide fast turnaround, primarily because they were located either in the hospital or a nearby location. However, over time, the decision to send samples to the public labs resulted in the demand for high-risk testing exceeding beyond their capacity. At this point in time private labs also started testing for high risk patients. However, as more private labs began to test, delays were observed partly due to a failure to prioritize patients and partly because of the transportation times needed to reach private labs given that they are typically located farther away. Our study accounts for these site-specific factors to offer directions for optimally assigning private and public labs in a region.

Given the high demand and quick need for actions such as quarantine, our results suggest that the allocation of testing should be done in view of both transportation time and the available capacity at the lab. While urgent testing can be done at a nearby public lab, lack of capacity in these labs can increase the delays and secondary infection volumes. By considering the trade-off between transportation time and relative capacity available in private and public labs, we provide directions for optimal assignment of samples to two labs located in Michigan to minimize the spread of infection. 

Source: Roy, D., Gupta, A., Nair, A., van Ommeren, J.C.W. Managing Testing during Pandemics: Considerations of Site-specific and Human-behavior Related Factors. Working paper.