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The Size and Service Offering Efficiencies of U.S. Hospitals

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Author Info

  • Gary D. Ferrier

    ()
    (Walton College of Business, University of Arkansas)

  • Hervé Leleu

    ()
    (LEM-CNRS (UMR 8179), IESEG School of Management)

  • James Moises

    ()
    (Department of Emergency Medicine, Tulane University)

  • Vivian Valdmanis

    ()
    (Department of Health Policy and Public Health, University of the Sciences in Philadelphia)

Abstract

Hospital productivity has been a research topic for over two decades. We expand on this research to include measures of dis/economies of scope. By using the Free Coordination Hull (FCH) we are able to determine if hospitals in our sample can become more efficient if they provide more services (diseconomies of scope) or if two smaller hospitals with a reallocation of resources could become more efficient (economies of scope). Using data from the American Hospital Association for the years 2004-2007, we found variations among hospital markets (measured by the Core Based Statistical Area). We can determine whether dis/economies of scope exist by comparing the results from two linear programming problems. Focusing on four markets: Los Angeles, Philadelphia, Madison, WI, and New Orleans we found variations in how best these hospitals operating in these markets could change in order to increase both scale and scope efficiencies. This approach could be used by policy makers and managers in order to reduce costs by sharing, reducing, or expanding services in hospitals. Findings from a study such as this should aid reform programs by providing more information on the sources of hospital inefficiency.

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Bibliographic Info

Paper provided by IESEG School of Management in its series Working Papers with number 2009-ECO-09.

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Length: 27 pages
Date of creation: Sep 2009
Date of revision:
Handle: RePEc:ies:wpaper:e200909

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Related research

Keywords: Hospital; Efficiency; Economies of Scope; Hospital Markets;

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References

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  1. Mark Pauly, 1980. "Doctors and Their Workshops: Economic Models of Physician Behavior," NBER Books, National Bureau of Economic Research, Inc, number paul80-1, July.
  2. Rexford E. Santerre & Debra Pepper, 2000. "Survivorship in the US hospital services industry," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 21(5), pages 181-189.
  3. Lee, Kwang-soo & Chun, Ki-hong & Lee, Jung-soo, 2008. "Reforming the hospital service structure to improve efficiency: Urban hospital specialization," Health Policy, Elsevier, Elsevier, vol. 87(1), pages 41-49, July.
  4. Maindiratta, Ajay, 1990. "Largest size-efficient scale and size efficiencies of decision-making units in data envelopment analysis," Journal of Econometrics, Elsevier, Elsevier, vol. 46(1-2), pages 57-72.
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  6. Bruce Hollingsworth & P.J. Dawson & N. Maniadakis, 1999. "Efficiency measurement of health care: a review of non‐parametric methods and applications," Health Care Management Science, Springer, Springer, vol. 2(3), pages 161-172, July.
  7. R. D. Banker & A. Charnes & W. W. Cooper, 1984. "Some Models for Estimating Technical and Scale Inefficiencies in Data Envelopment Analysis," Management Science, INFORMS, INFORMS, vol. 30(9), pages 1078-1092, September.
  8. Bruce Hollingsworth, 2008. "The measurement of efficiency and productivity of health care delivery," Health Economics, John Wiley & Sons, Ltd., vol. 17(10), pages 1107-1128.
  9. Rajiv D. Banker & Robert F. Conrad & Robert P. Strauss, 1986. "A Comparative Application of Data Envelopment Analysis and Translog Methods: An Illustrative Study of Hospital Production," Management Science, INFORMS, INFORMS, vol. 32(1), pages 30-44, January.
  10. Panzar, John C & Willig, Robert D, 1981. "Economies of Scope," American Economic Review, American Economic Association, American Economic Association, vol. 71(2), pages 268-72, May.
  11. Anil Bamezai & Jack Zwanziger & Glenn A. Melnick & Joyce M. Mann, 1999. "Price competition and hospital cost growth in the United States (1989-1994)," Health Economics, John Wiley & Sons, Ltd., vol. 8(3), pages 233-243.
  12. Guy David & Lorens A. Helmchen & Robert A. Henderson, 2009. "Does advanced medical technology encourage hospitalist use and their direct employment by hospitals?," Health Economics, John Wiley & Sons, Ltd., vol. 18(2), pages 237-247.
  13. Kittelsen, Sverre A.C. & Magnussen, Jon, 2009. "Economies of scope in Norwegian hospital production - A DEA analysis," HERO On line Working Paper Series, Oslo University, Health Economics Research Programme 2003:8, Oslo University, Health Economics Research Programme.
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Cited by:
  1. Brandon Pope & Andrew Johnson, 2013. "Returns to scope: a metric for production synergies demonstrated for hospital production," Journal of Productivity Analysis, Springer, Springer, vol. 40(2), pages 239-250, October.

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