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The sources of hospital cost variability

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  • Brigitte Dormont
  • Carine Milcent

Abstract

Hospital heterogeneity is a major issue in defining a reimbursement system. If hospitals are heterogeneous, it is difficult to distinguish which part of the differences in costs is due to cost containment efforts and which part cannot be reduced, because it is due to other unobserved sources of hospital heterogeneity. In this paper, we apply an econometric approach to analyse hospital cost variability. We use a nested three‐dimensional database (stays‐hospitals‐years) in order to explore the sources of variation in hospital costs, taking into account unobservable components of hospital cost heterogeneity. The three‐dimensional structure of our data makes it possible to identify transitory and permanent components of hospital cost heterogeneity. Econometric estimates are performed on a sample of 7314 stays for acute myocardial infarction (AMI) observed in 36 French public hospitals over the period 1994–1997. Transitory unobservable hospital heterogeneity is far from negligible: its estimated standard error is about 50% of the standard error we estimate for cost variability due to permanent unobservable heterogeneity between hospitals. Copyright © 2004 John Wiley & Sons, Ltd.

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  • Brigitte Dormont & Carine Milcent, 2004. "The sources of hospital cost variability," Health Economics, John Wiley & Sons, Ltd., vol. 13(10), pages 927-939, October.
  • Handle: RePEc:wly:hlthec:v:13:y:2004:i:10:p:927-939
    DOI: 10.1002/hec.935
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    2. Unto Häkkinen & Pietro Chiarello & Francesc Cots & Mikko Peltola & Hanna Rättö & ON BEHALF OF THE EURODRG GROUP, 2012. "Patient Classification And Hospital Costs Of Care For Acute Myocardial Infarction In Nine European Countries," Health Economics, John Wiley & Sons, Ltd., vol. 21(S2), pages 19-29, August.
    3. Daidone, Silvio & Street, Andrew, 2013. "How much should be paid for specialised treatment?," Social Science & Medicine, Elsevier, vol. 84(C), pages 110-118.
    4. Møller Dahl, Christian & Planck Kongstad, Line, 2017. "The costs of acute readmissions to a different hospital – Does the effect vary across provider types?," Social Science & Medicine, Elsevier, vol. 183(C), pages 116-125.
    5. Andrew Street & Conrad Kobel & Thomas Renaud & Josselin Thuilliez & ON BEHALF OF THE EURODRG GROUP, 2012. "How Well Do Diagnosis‐Related Groups Explain Variations In Costs Or Length Of Stay Among Patients And Across Hospitals? Methods For Analysing Routine Patient Data," Health Economics, John Wiley & Sons, Ltd., vol. 21(S2), pages 6-18, August.
    6. Somi Shin & Christoph Schumacher & Eberhard Feess, 2017. "Do Capitation‐based Reimbursement Systems Underfund Tertiary Healthcare Providers? Evidence from New Zealand," Health Economics, John Wiley & Sons, Ltd., vol. 26(12), pages 81-102, December.
    7. Oliver Tiemann, 2008. "Variations in hospitalisation costs for acute myocardial infarction – a comparison across Europe," Health Economics, John Wiley & Sons, Ltd., vol. 17(S1), pages 33-45, January.
    8. Siok Tan & Leona Hakkaart-van Roijen & B. Ineveld & W. Redekop, 2013. "Explaining length of stay variation of episodes of care in the Netherlands," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 14(6), pages 919-927, December.
    9. Martine Bellanger & Laurent Tardif, 2006. "Accounting and reimbursement schemes for inpatient care in France," Health Care Management Science, Springer, vol. 9(3), pages 295-305, August.
    10. Julia Bonastre & Marc le Vaillant & Gerard de Pouvourville, 2011. "The impact of research on hospital costs of care: an empirical study," Health Economics, John Wiley & Sons, Ltd., vol. 20(1), pages 73-84, January.
    11. James Gaughan & Anne Mason & Andrew Street & Padraic Ward, 2012. "English Hospitals Can Improve Their Use of Resources: An Analysis of Costs and Length of Stay for Ten Treatments," Working Papers 078cherp, Centre for Health Economics, University of York.
    12. Pi-Fem Hsu, 2014. "Does a global budget superimposed on fee-for-service payments mitigate hospitals’ medical claims in Taiwan?," International Journal of Health Economics and Management, Springer, vol. 14(4), pages 369-384, December.
    13. Thanassoulis, Emmanuel & Silva Portela, Maria & Graveney, Mike, 2016. "Identifying the scope for savings at inpatient episode level: An illustration applying DEA to chronic obstructive pulmonary disease," European Journal of Operational Research, Elsevier, vol. 255(2), pages 570-582.

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    JEL classification:

    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health

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