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The Impact of Market Environment on Excess Capacity and the Cost of an Empty Hospital Bed

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  • Jon Magnussen
  • Lee Rivers Mobley
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    Abstract

    The health economics literature contains contradictory empirical findings regarding the cost of an empty hospital bed. Recent empirical studies which account for the endogeneity of reserve capacity produce high estimates of these costs, while earlier studies and industry experts maintain that empty beds are cheap. This paper provides evidence which helps to reconcile the controversy. The cost of excess bed capacity will depend upon staffing levels of different types of labor in the hospital. We provide a relationship between capacity utilization, productive efficiency, and the cost of empty beds, and then compare the utilization of bed capacity in four very different market environments. These are the highly regulated, public Norwegian hospitals, who face very little competitive pressure, and the unregulated, private California hospitals, divided into three groups with variation in ownership and competitive environment. We find considerable variation in input utilization and excess capacity, with different implications for the cost of empty beds across the hospital groups and their respective market environments. Our findings suggest that the cost of an empty bed varies with market conditions, hence the seemingly contradictory findings in the literature are to be expected. Our findings also suggest an interesting area of future research: the impact of managed care on reserve capacity in hospitals.

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    File URL: http://www.tandfonline.com/10.1080/13571519984142
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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal International Journal of the Economics of Business.

    Volume (Year): 6 (1999)
    Issue (Month): 3 ()
    Pages: 383-398

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    Handle: RePEc:taf:ijecbs:v:6:y:1999:i:3:p:383-398

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    Web page: http://www.tandfonline.com/CIJB20

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    Related research

    Keywords: Hospital; Efficiency; Capacity; Reserve Capacity; Competition; Option Demand; Cost Of An Empty Bed; Staffed Bed;

    References

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Keeler, Theodore E & Ying, John S, 1996. "Hospital Costs and Excess Bed Capacity: A Statistical Analysis," The Review of Economics and Statistics, MIT Press, vol. 78(3), pages 470-81, August.
    2. Jensen, Gail A & Morrisey, Michael A, 1986. "The Role of Physicians in Hospital Production," The Review of Economics and Statistics, MIT Press, vol. 68(3), pages 432-42, August.
    3. Iversen, Tor, 1993. "A theory of hospital waiting lists," Journal of Health Economics, Elsevier, vol. 12(1), pages 55-71, April.
    4. Roger Feldman & Felix Lobo, 1997. "Global Budgets and Excess Demand for Hospital Care," Health Economics, John Wiley & Sons, Ltd., vol. 6(2), pages 187-196.
    5. Gaynor, Martin & Anderson, Gerard F., 1995. "Uncertain demand, the structure of hospital costs, and the cost of empty hospital beds," Journal of Health Economics, Elsevier, vol. 14(3), pages 291-317, August.
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    Cited by:
    1. Lukas Steinmann & Gunnar Dittrich & Alexander Karmann & Peter Zweifel, 2004. "Measuring and comparing the (in)efficiency of German and Swiss hospitals," The European Journal of Health Economics, Springer, vol. 5(3), pages 216-226, September.
    2. Gunnar Dittrich & Alexander Karmann & Lukas Steinmann & Peter Zweifel, 2005. "Effiziente Krankenhäuser? : ein Vergleich sächsischer und schweizerischer Krankenhäuser," ifo Dresden berichtet, Ifo Institute for Economic Research at the University of Munich, vol. 12(02), pages 9-18, 04.
    3. Björn A. Kuchinke & Ansgar Wübker, 2009. "Defizite von öffentlichen Allgemeinkrankenhäusern in Deutschland: Empirische Befunde von 1998 bis 2004 und wirtschaftspolitische Implikationen," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 10(3), pages 290-308, 08.

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