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The sources of hospital cost variability

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  • Brigitte Dormont
  • Carine Milcent

Abstract

Hospital heterogeneity is a major issue in defining a reimbursement system. If hospitals are heterogeneous, it is difficult to distinguish which part of the differences in costs is due to cost containment efforts and which part cannot be reduced, because it is due to other unobserved sources of hospital heterogeneity. In this paper, we apply an econometric approach to analyse hospital cost variability. We use a nested three-dimensional database (stays-hospitals-years) in order to explore the sources of variation in hospital costs, taking into account unobservable components of hospital cost heterogeneity. The three-dimensional structure of our data makes it possible to identify transitory and permanent components of hospital cost heterogeneity. Econometric estimates are performed on a sample of 7314 stays for acute myocardial infarction (AMI) observed in 36 French public hospitals over the period 1994-1997. Transitory unobservable hospital heterogeneity is far from negligible: its estimated standard error is about 50% of the standard error we estimate for cost variability due to permanent unobservable heterogeneity between hospitals. Copyright © 2004 John Wiley & Sons, Ltd.

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Bibliographic Info

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

Volume (Year): 13 (2004)
Issue (Month): 10 ()
Pages: 927-939

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Handle: RePEc:wly:hlthec:v:13:y:2004:i:10:p:927-939

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

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Cited by:
  1. James Gaughan & Anne Mason & Andrew Street & Padraic Ward, 2012. "English Hospitals Can Improve Their Use of Resources: An Analysis of Costs and Length of Stay for Ten Treatments," Working Papers 078cherp, Centre for Health Economics, University of York.
  2. Brigitte Dormont & Carine Milcent, 2005. "How to Regulate Heterogeneous Hospitals?," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 14(3), pages 591-621, 09.
  3. Nils Gutacker & Chris Bojke & Silvio Daidone & Nancy Devlin & David Parkin & Andrew Street, 2011. "Truly inefficient or providing better quality of care? Analysing the relationship between riskadjusted hospital costs and patients’ health outcomes," Working Papers 068cherp, Centre for Health Economics, University of York.
  4. Martine Bellanger & Laurent Tardif, 2006. "Accounting and reimbursement schemes for inpatient care in France," Health Care Management Science, Springer, vol. 9(3), pages 295-305, August.
  5. Daidone, Silvio & Street, Andrew, 2013. "How much should be paid for specialised treatment?," Social Science & Medicine, Elsevier, vol. 84(C), pages 110-118.
  6. Siok Tan & Leona Hakkaart-van Roijen & B. Ineveld & W. Redekop, 2013. "Explaining length of stay variation of episodes of care in the Netherlands," The European Journal of Health Economics, Springer, vol. 14(6), pages 919-927, December.
  7. Oliver Tiemann, 2008. "Variations in hospitalisation costs for acute myocardial infarction - a comparison across Europe," Health Economics, John Wiley & Sons, Ltd., vol. 17(S1), pages S33-S45.

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