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Hospital Costs and the Cost of Empty Hospital Beds

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  • Martin Gaynor
  • Gerard F. Anderson

Abstract

The cost of excess capacity in the hospital industry has reemerged as an important policy issue. Utilized capacity in the hospital industry, as measured by the inpatient hospital bed occupancy rate, has declined over the past 10 years and now stands at approximately 65 percent. Congress and the Administration are concerned that the costs associated with empty beds represent wasteful expense and have proposed an adjustment to Medicare payment rates which will penalize hospitals with low occupancy rates. Hospitals, on the other hand, have indicated that the costs of empty hospital beds are low and that reimbursement adjustments are unnecessary. In order to provide more current and representative estimates of the cost of an empty hospital bed we estimate the cost function model of Friedman and Pauly using data from a national sample of 5315 hospitals for the years 1963-1987. We find that empty beds account for approximately 18 percent of total costs, or $546 per admission (1987 dollars) . The estimate (in 1987 dollars) of the coat of an empty hospital bed is approximately $36,000.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3872.

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Date of creation: Oct 1991
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Publication status: Published as "Uncertain Demand, the Structure of Hospital Costs, and the Cost of Empty Hospital Beds", Journal of Health Economics, Vol. 14, no. 3 (1995): 291-317.
Handle: RePEc:nbr:nberwo:3872

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  1. Koenker, Roger, 1981. "A note on studentizing a test for heteroscedasticity," Journal of Econometrics, Elsevier, vol. 17(1), pages 107-112, September.
  2. MacKinnon, James G. & White, Halbert & Davidson, Russell, 1983. "Tests for model specification in the presence of alternative hypotheses : Some further results," Journal of Econometrics, Elsevier, vol. 21(1), pages 53-70, January.
  3. Breusch, T S & Pagan, A R, 1979. "A Simple Test for Heteroscedasticity and Random Coefficient Variation," Econometrica, Econometric Society, vol. 47(5), pages 1287-94, September.
  4. Michael Rothschild & Gregory J. Werden, 1979. "Returns to Scale From Random Factor Services: Existence and Scope," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 329-335, Spring.
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Cited by:
  1. Mehdi Farsi, 2008. "The temporal variation of cost-efficiency in Switzerland’s hospitals: an application of mixed models," Journal of Productivity Analysis, Springer, vol. 30(2), pages 155-168, October.
  2. Jonathan Skinner & John E. Wennberg, 1998. "How Much is Enough? Efficiency and Medicare Spending in the Last Six Months of Life," NBER Working Papers 6513, National Bureau of Economic Research, Inc.
  3. Kyung Kim & Kathleen Carey & James Burgess, 2009. "Emergency department visits: the cost of trauma centers," Health Care Management Science, Springer, vol. 12(3), pages 243-251, September.
  4. Kathleen Carey & Theodore Stefos, 2011. "Controlling for quality in the hospital cost function," Health Care Management Science, Springer, vol. 14(2), pages 125-134, June.
  5. Guillem López & Marc Sáez, 1998. "Finance versus costs for teaching hospitals in Spain," Working Papers, Research Center on Health and Economics 265, Department of Economics and Business, Universitat Pompeu Fabra.
  6. Ludwig Kuntz & Stefan Scholtes & Antonio Vera, 2007. "Incorporating efficiency in hospital-capacity planning in Germany," The European Journal of Health Economics, Springer, vol. 8(3), pages 213-223, September.
  7. C. A. Knox Lovell & Ana Rodr�guez-�lvarez & Alan Wall, 2009. "The effects of stochastic demand and expense preference behaviour on public hospital costs and excess capacity," Health Economics, John Wiley & Sons, Ltd., vol. 18(2), pages 227-235.
  8. Guillem López & Marc Sáez, 1998. "Finance versus costs for teaching hospitals in Spain," Economics Working Papers 265, Department of Economics and Business, Universitat Pompeu Fabra.
  9. David Bardey & Ramón Castaño, 2007. "La regulación de tarifas en el sector de la salud en Colombia," Revista de Economía Institucional, Universidad Externado de Colombia - Facultad de Economía, vol. 9(17), pages 347-357, July-Dece.
  10. J.L.T. Blank & A.H.Q.M. Merkies, 2004. "Empirical assessment of the economic behaviour of Dutch general hospitals," Health Economics, John Wiley & Sons, Ltd., vol. 13(3), pages 265-280.
  11. Dan Friesner & Robert Rosenman, 2004. "Non-profit cost-adjusting with quality as a private good," Applied Economics, Taylor & Francis Journals, vol. 36(5), pages 511-523.
  12. Cohen, Jeffrey P. & Morrison Paul, Catherine, 2008. "Agglomeration and Cost Economies for Washington State Hospital Services," Regional Science and Urban Economics, Elsevier, vol. 38(6), pages 553-564, November.

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