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Analysis of Hospital Production: An Output Index Approach

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  • Martin S. Gaynor
  • Samuel A. Kleiner
  • William B. Vogt

Abstract

In this study, we develop and implement an output index approach to the estimation of hospital cost functions that reflects the differentiated nature of hospital care. The approach combines the estimation of an output index within a flexible functional form. We find, in an application to California hospitals, evidence of scope economies across specialties within primary care, and diseconomies of scope within secondary and tertiary care. Minimum efficient scale is reached at larger levels of output than would be estimated by conventional techniques. These results indicate the importance of accounting for firm output heterogeneity when estimating cost functions. Copyright © 2014 John Wiley & Sons, Ltd.

Suggested Citation

  • Martin S. Gaynor & Samuel A. Kleiner & William B. Vogt, 2015. "Analysis of Hospital Production: An Output Index Approach," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 30(3), pages 398-421, April.
  • Handle: RePEc:wly:japmet:v:30:y:2015:i:3:p:398-421
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    Cited by:

    1. Cooper, Zack & Craig, Stuart & Gaynor, Martin & Van Reenen, John, 2015. "The price ain’t right? hospital prices and healthspending on the privately insured," LSE Research Online Documents on Economics 66059, London School of Economics and Political Science, LSE Library.
    2. Juan Contreras & Elena Patel & Ignez Tristao, 2013. "Production Factors, Productivity Dynamics and Quality Gains as Determinants of Healthcare Spending Growth in U.S. Hospitals," Working Papers 2013-13, Banco de México.
    3. Zack Cooper & Amanda E. Kowalski & Eleanor Neff Powell & Jennifer Wu, 2017. "Politics, Hospital Behavior, and Health Care Spending Effect Methods to Examine Treatment Effect Heterogeneity in Experiments for the Young and Privately Insured?," Cowles Foundation Discussion Papers 3006, Cowles Foundation for Research in Economics, Yale University.
    4. Schmitt, Matt, 2017. "Do hospital mergers reduce costs?," Journal of Health Economics, Elsevier, vol. 52(C), pages 74-94.
    5. Cooper, Zack & Kowalski, Amanda & Neff Powell, Eleanor & Wu, Jennifer, "undated". "Politics, hospital behaviour and health care spending," LSE Research Online Documents on Economics 86620, London School of Economics and Political Science, LSE Library.
    6. Vomhof, Markus, 2016. "Hospital competition with heterogeneous patient groups: Incentives and regulation," Ruhr Economic Papers 624, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.

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