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Determinants of variation in the cost of inpatient stays versus outpatient visits in hospitals: A multi-country analysis

Listed author(s):
  • Adam, Taghreed
  • Evans, David B.
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    Information on hospital costs is key to many types of economic and financial analyses, yet many countries lack reliable estimates due partly to the time and resources required to undertake detailed costing studies. Accordingly, some analysts have used simple rules of thumb to estimate hospital unit costs, e.g., total hospital costs are allocated between departments assuming that the cost of an inpatient day equals a fixed number of outpatient visits. This paper first explores the extent to which these simple rules apply within and across countries. It then identifies determinants of variation in the relationship between the cost of outpatient visits and inpatient days, then uses the estimated relationship to calculate average costs of inpatient and outpatient stays for countries where data are not yet available. Cost information from 832 hospitals in 28 countries are used. We show that simple rules of thumb do not prove to be an accurate basis for cost estimates. The ratio of inpatient to outpatient unit costs varies with GDP per capita, hospital size, ownership, and occupancy rate. We show how the estimated relationship can be used to calculate a mean cost of inpatient stays and outpatient visits, taking into account differences in the levels of key determinants, and argue that, in the absence of a representative sample of hospital costing studies, this method can be used to estimate unit costs in the interim. Moreover, we suggest that the observed great variation in unit costs for similar hospitals in the same country means that this method might well be preferable to basing policy advice on the results of costing studies that cover only one, or a few hospitals, which might well be outliers.

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    Article provided by Elsevier in its journal Social Science & Medicine.

    Volume (Year): 63 (2006)
    Issue (Month): 7 (October)
    Pages: 1700-1710

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    Handle: RePEc:eee:socmed:v:63:y:2006:i:7:p:1700-1710
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    1. Joseph P. Newhouse, 1992. "Medical Care Costs: How Much Welfare Loss?," Journal of Economic Perspectives, American Economic Association, vol. 6(3), pages 3-21, Summer.
    2. Edgar A. Peden & Mark S. Freeland, 1998. "Insurance effects on US medical spending (1960-1993)," Health Economics, John Wiley & Sons, Ltd., vol. 7(8), pages 671-687.
    3. Liu, Xingzhu & Hsiao, William C. L., 1995. "The cost escalation of social health insurance plans in China: Its implication for public policy," Social Science & Medicine, Elsevier, vol. 41(8), pages 1095-1101, October.
    4. World Bank, 2000. "World Development Indicators 2000," World Bank Publications, The World Bank, number 13828, December.
    5. Breyer, Friedrich, 1987. "The specification of a hospital cost function : A comment on the recent literature," Journal of Health Economics, Elsevier, vol. 6(2), pages 147-157, June.
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