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Cost characteristics of hospitals

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  • Smet, Mike

Abstract

Modern hospitals are complex multi-product organisations. The analysis of a hospital's production and/or cost structure should therefore use the appropriate techniques. Flexible functional forms based on the neo-classical theory of the firm seem to be most suitable. Using neo-classical cost functions implicitly assumes minimisation of (variable) costs given that input prices and outputs are exogenous. Local and global properties of flexible functional forms and short-run versus long-run equilibrium are further issues that require thorough investigation. In order to put the results based on econometric estimations of cost functions in the right perspective, it is important to keep these considerations in mind when using flexible functional forms. The more recent studies seem to agree that hospitals generally do not operate in their long-run equilibrium (they tend to over-invest in capital (capacity and equipment)) and that it is therefore appropriate to estimate a short-run variable cost function. However, few studies explicitly take into account the implicit assumptions and restrictions embedded in the models they use. An alternative method to explain differences in costs uses management accounting techniques to identify the cost drivers of overhead costs. Related issues such as cost-shifting and cost-adjusting behaviour of hospitals and the influence of market structure on competition, prices and costs are also discussed shortly.

Suggested Citation

  • Smet, Mike, 2002. "Cost characteristics of hospitals," Social Science & Medicine, Elsevier, vol. 55(6), pages 895-906, September.
  • Handle: RePEc:eee:socmed:v:55:y:2002:i:6:p:895-906
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    References listed on IDEAS

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    Cited by:

    1. 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.
    2. Suthummanon, Sakesun & Omachonu, Vincent K., 2008. "Cost minimization models: Applications in a teaching hospital," European Journal of Operational Research, Elsevier, vol. 186(3), pages 1175-1183, May.
    3. Ricardo Gonçalves & Pedro Pita Barros, 2013. "Economies of scale and scope in the provision of diagnostic techniques and therapeutic services in Portuguese hospitals," Applied Economics, Taylor & Francis Journals, vol. 45(4), pages 415-433, February.
    4. Siciliani, Luigi & Stanciole, Anderson & Jacobs, Rowena, 2009. "Do waiting times reduce hospital costs?," Journal of Health Economics, Elsevier, vol. 28(4), pages 771-780, July.
    5. 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.
    6. Adang, Eddy M.M. & Wensing, Michel, 2008. "Economic barriers to implementation of innovations in health care: Is the long run-short run efficiency discrepancy a paradox?," Health Policy, Elsevier, vol. 88(2-3), pages 236-242, December.
    7. Alvaro Almeida & Joana Cima, 2013. "Demand Uncertainty and Hospital Costs: an Application to Portuguese NHS Hospitals," FEP Working Papers 499, Universidade do Porto, Faculdade de Economia do Porto.
    8. Gijs Wetering & Willem Woertman & Eddy Adang, 2012. "Time to incorporate time in cost-effectiveness analysis," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 13(3), pages 223-226, June.
    9. Marini G & Miraldo M, 2009. "The costs of new organisational and financial freedom: The case of English NHS trusts," Health, Econometrics and Data Group (HEDG) Working Papers 09/26, HEDG, c/o Department of Economics, University of York.
    10. Mike Smet, 2007. "Measuring performance in the presence of stochastic demand for hospital services: an analysis of Belgian general care hospitals," Journal of Productivity Analysis, Springer, vol. 27(1), pages 13-29, February.
    11. Alvaro Almeida & Joana Cima, 2015. "Demand uncertainty and hospital costs: an application to Portuguese public hospitals," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 16(1), pages 35-45, January.

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