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Estimating hospital costs with a generalized Leontief function

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  • Tong Li

    (Department of Economics, Wylie Hall, Indiana University, Bloomington, IN, USA)

  • Robert Rosenman

    (Department of Economics, Washington State University, Pullman, WA, USA)

Abstract

This paper estimates a long-run hospital cost function with multiple outputs and inputs using a panel data set from Washington State hospitals during 1988-1993. We find that with our data the generalized Leontief function is more appropriate than a translog for estimating hospital cost functions. With respect to hospital costs, we find that hospitals readily adjust the use of intermediate products. Radiology, therapies and surgery, and other inpatient days, all serve as substitutes for core inpatient days. Outpatient services are found to be complementary to core inpatient services, indicating that the growth of stand-alone outpatient clinics might increase the costs of providing healthcare services. Our analysis finds that hospitals show significant economies of scale, but there is a limited amount of evidence of scope economies. Also, there is some evidence that profit-seeking hospitals achieve some of their goals by controlling costs, and that diagnostically related groups (DRG)-based Medicare services are effective in getting hospitals to control costs. Copyright © 2001 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/hec.605
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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal Health Economics.

Volume (Year): 10 (2001)
Issue (Month): 6 ()
Pages: 523-538

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Handle: RePEc:wly:hlthec:v:10:y:2001:i:6:p:523-538

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Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/5749

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Cited by:
  1. Li, Jing, 2013. "Intermediate input sharing in the hospital service industry," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 43(6), pages 888-902.
  2. Mehdi Farsi & Massimo Filippini, 2008. "Effects of ownership, subsidization and teaching activities on hospital costs in Switzerland," Health Economics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 17(3), pages 335-350.
  3. P. Prezerakos & N. Maniadakis & D. Kaitelidou & N. Kotsopoulos & J. Yfantopoulos, 2007. "Measuring Across Hospital Efficiency and Productivity: The Case of Second Regional Health Authority of Attica," European Research Studies Journal, European Research Studies Journal, European Research Studies Journal, vol. 0(1-2), pages 83-96.
  4. Troels Kristensen & Peter Bogetoft & Kjeld Pedersen, 2010. "Potential gains from hospital mergers in Denmark," Health Care Management Science, Springer, Springer, vol. 13(4), pages 334-345, December.
  5. Kyung Kim & Kathleen Carey & James Burgess, 2009. "Emergency department visits: the cost of trauma centers," Health Care Management Science, Springer, Springer, vol. 12(3), pages 243-251, September.
  6. Cohen, Jeffrey P. & Morrison Paul, Catherine, 2008. "Agglomeration and Cost Economies for Washington State Hospital Services," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 38(6), pages 553-564, November.
  7. Timothy Gunning & Robin Sickles, 2011. "A multi-product cost function for physician private practices," Journal of Productivity Analysis, Springer, Springer, vol. 35(2), pages 119-128, April.
  8. Teresa D. Harrison, 2007. "Consolidations and closures: an empirical analysis of exits from the hospital industry," Health Economics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 16(5), pages 457-474.
  9. Kristensen, Troels & Olsen, Kim Rose & Kilsmark, Jannie & Lauridsen, Jørgen T. & Pedersen, Kjeld Møller, 2012. "Economies of scale and scope in the Danish hospital sector prior to radical restructuring plans," Health Policy, Elsevier, Elsevier, vol. 106(2), pages 120-126.
  10. Timothy Gunning & Robin Sickles, 2013. "Competition and market power in physician private practices," Empirical Economics, Springer, Springer, vol. 44(2), pages 1005-1029, April.
  11. MORIKAWA Masayuki, 2010. "Economies of Scale and Hospital Productivity: An empirical analysis of medical area level panel data," Discussion papers, Research Institute of Economy, Trade and Industry (RIETI) 10050, Research Institute of Economy, Trade and Industry (RIETI).
  12. Heimeshoff, Mareike & Schreyögg, Jonas, 2013. "Estimation of a physician practice cost function," hche Research Papers 2013/07, Hamburg Center for Health Economics (hche), University of Hamburg.
  13. Jean-Philippe Boussemart & Hervé Leleu & Viviane Valdmanis, 2013. "Price of Medicaid and Uncompensated Care compared to Medicare and Private care: A translog shadow pricing approach for Floridian hospital outputs," Working Papers, IESEG School of Management 2013-ECO-02, IESEG School of Management.
  14. Kathleen Carey & Theodore Stefos, 2011. "Controlling for quality in the hospital cost function," Health Care Management Science, Springer, Springer, vol. 14(2), pages 125-134, June.

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