Optimal expansion paths for hospitals of different types: Viewpoint of scope economies and evidence from Chinese hospitals

Hospitals have different departments for treating specific diseases. Some hospitals are specialized into one department while others are diversified into many departments. Since many inputs for different departments can be shared, running a diversified hospital is probably less costly than running several specialized hospitals separately due to economies of scope. In this paper, we examine whether expanding the scope of hospitals with a limited number of departments is worthwhile using hospitals in China as the context. The degree of economies of scope is measured in terms of efficiencies gained via a data envelopment analysis. The results show that economies of scope exist for expanding general hospitals lacking one department into general hospitals with all departments. In cases of very specialized hospitals with departments such as dentistry and ophthalmology, it is more efficient to operate them separately. Adding these departments to hospitals with a narrow scope exhibits diseconomies of scope. An expansion network is constructed, with eight optimal paths identified, to guide hospitals of different types to expand their scopes into general comprehensive hospitals stage by stage in a scope-economic way. Since the department to be added is different at each stage of the expansion, the returns to scope do not exhibit a consistent trend for different methods of expansion.