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Restructuring hospital industry to control public health care expenditure: The role of input substitutability

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  • Piacenza, Massimiliano
  • Turati, Gilberto
  • Vannoni, Davide

Abstract

In this paper we investigate the economic rationality of the bed downsizing process, characterising the hospital industry worldwide in the last decades, as a measure to control public health care expenditure. Considering a sample of Italian hospitals, we provide fresh evidence on the factor substitutability in the production of hospital services. Differently from other studies, based on North-American data and limited to pre-determined cost function models, we estimate a general specification (the Generalised Composite), and test it against traditional nested models (e.g. the Translog). For all the specifications we derive Allen, Morishima and Shadow elasticities of substitution between input pairs, obtaining a fairly consistent picture across all models and elasticity concepts. In particular, our results highlight a very limited degree of substitutability between factors in the production of hospital services, especially between beds and medical staff. These findings suggest that a restructuring policy of the hospital industry, which is confined to reducing the number of beds without involving workforce management, could not be a viable strategy for controlling public health care expenditure.

Suggested Citation

  • Piacenza, Massimiliano & Turati, Gilberto & Vannoni, Davide, 2010. "Restructuring hospital industry to control public health care expenditure: The role of input substitutability," Economic Modelling, Elsevier, vol. 27(4), pages 881-890, July.
  • Handle: RePEc:eee:ecmode:v:27:y:2010:i:4:p:881-890
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    1. repec:kap:hcarem:v:20:y:2017:i:3:d:10.1007_s10729-016-9359-1 is not listed on IDEAS
    2. Graziano Abrate & Fabrizio Erbetta & Giovanni Fraquelli & Davide Vannoni, 2014. "The Costs of Disposal and Recycling: An Application to Italian Municipal Solid Waste Services," Regional Studies, Taylor & Francis Journals, vol. 48(5), pages 896-909, May.
    3. Di Giorgio, L. & Filippini, M. & Masiero, G., 2015. "Structural and managerial cost differences in nonprofit nursing homes," Economic Modelling, Elsevier, vol. 51(C), pages 289-298.
    4. Cavalieri, M. & Guccio, C. & Lisi, D. & Pignataro, G., 2015. "Does the Extent of Per-Case Payment System Affect Hospital Efficiency? Evidence from the Italian NHS," Health, Econometrics and Data Group (HEDG) Working Papers 15/29, HEDG, c/o Department of Economics, University of York.
    5. 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, vol. 106(2), pages 120-126.
    6. Vincenzo Atella & Federico Belotti & Silvio Daidone & Giuseppe Ilardi & Giorgia Marini, 2012. "Cost-containment policies and hospital efficiency: evidence from a panel of Italian hospitals," CEIS Research Paper 228, Tor Vergata University, CEIS, revised 13 Apr 2012.

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