When Does Collocation of Physical and Mental Health Services Matter?

Problem definition: A key choice in operational decision making is whether to collocate services. Although prior work has highlighted the benefits of collocation, these benefits may need to be balanced with potential costs. Thus, it is critical to understand not just whether collocation matters, but also when and for whom. We consider collocation in the context of healthcare and ask: Does collocation of mental and physical health resources improve outcomes? This is important, as primary care serves as a gateway to address mental health concerns. We next study collocation’s relationship with patient complexity and with three social risk factors: age, race, and income. Finally, we investigate two pathways through which collocation impacts outcomes. Methodology/results: As America’s largest integrated healthcare system, the Veterans Health Administration offers an excellent setting to investigate these questions. We empirically analyze more than 112,000 patients—over an 11-year period—who suffer from chronic conditions and show evidence of mental illness. We find that collocation is associated with improvement in four key outcomes: hospitalizations, length of stay (LOS), 30-day readmissions, and suicidal behavior. For example, a one-standard-deviation increase in collocation is related to a 3.4% average reduction in LOS, roughly equivalent to a savings of $3.6 million annually, just for our cohort, with the majority of the savings coming from severely ill patients. Further, collocation benefits patients who are younger, are non-Hispanic Blacks, and those with low incomes. Finally, our analysis reveals that collocation improves outcomes (partially) through a reduction in no-shows and an increase in medication adherence. Managerial implications: Our work demonstrates the importance of collocation as a strategic operational lever and offers insights into where to target collocation and, broadly, how to design an operationally efficient system. Theoretically, we advance the location literature, emphasize task complexity as a key moderator, and highlight collocation’s value in addressing health/social inequities. Funding: C. A. Alvarez received research support from the National Center for Advancing Translational Sciences of the National Institutes of Health [Award UL1 TR003163]. Supplemental Material: The online appendix is available at https://doi.org/10.1287/msom.2023.0662 .