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Hospital Costs and the Cost of Empty Hospital Beds


  • Martin Gaynor
  • Gerard F. Anderson


The cost of excess capacity in the hospital industry has reemerged as an important policy issue. Utilized capacity in the hospital industry, as measured by the inpatient hospital bed occupancy rate, has declined over the past 10 years and now stands at approximately 65 percent. Congress and the Administration are concerned that the costs associated with empty beds represent wasteful expense and have proposed an adjustment to Medicare payment rates which will penalize hospitals with low occupancy rates. Hospitals, on the other hand, have indicated that the costs of empty hospital beds are low and that reimbursement adjustments are unnecessary. In order to provide more current and representative estimates of the cost of an empty hospital bed we estimate the cost function model of Friedman and Pauly using data from a national sample of 5315 hospitals for the years 1963-1987. We find that empty beds account for approximately 18 percent of total costs, or $546 per admission (1987 dollars) . The estimate (in 1987 dollars) of the coat of an empty hospital bed is approximately $36,000.

Suggested Citation

  • Martin Gaynor & Gerard F. Anderson, 1991. "Hospital Costs and the Cost of Empty Hospital Beds," NBER Working Papers 3872, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:3872
    Note: HE

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    Cited by:

    1. Guillem López & Marc Sáez, 1998. "Finance versus costs for teaching hospitals in Spain," Working Papers, Research Center on Health and Economics 265, Department of Economics and Business, Universitat Pompeu Fabra.
    2. Mehdi Farsi, 2008. "The temporal variation of cost-efficiency in Switzerland’s hospitals: an application of mixed models," Journal of Productivity Analysis, Springer, vol. 30(2), pages 155-168, October.
    3. Ludwig Kuntz & Stefan Scholtes & Antonio Vera, 2007. "Incorporating efficiency in hospital-capacity planning in Germany," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 8(3), pages 213-223, September.
    4. J.L.T. Blank & A.H.Q.M. Merkies, 2004. "Empirical assessment of the economic behaviour of Dutch general hospitals," Health Economics, John Wiley & Sons, Ltd., vol. 13(3), pages 265-280.
    5. David Bardey & Ramón Castaño, 2007. "La regulación de tarifas en el sector de la salud en Colombia," Revista de Economía Institucional, Universidad Externado de Colombia - Facultad de Economía, vol. 9(17), pages 347-357, July-Dece.
    6. Christoph Schwierz, 2011. "Expansion in markets with decreasing demand‐for‐profits in the German hospital industry," Health Economics, John Wiley & Sons, Ltd., vol. 20(6), pages 675-687, June.
    7. Dan Friesner & Robert Rosenman, 2004. "Non-profit cost-adjusting with quality as a private good," Applied Economics, Taylor & Francis Journals, vol. 36(5), pages 511-523.
    8. repec:zbw:rwirep:0106 is not listed on IDEAS
    9. Kyung Kim & Kathleen Carey & James Burgess, 2009. "Emergency department visits: the cost of trauma centers," Health Care Management Science, Springer, vol. 12(3), pages 243-251, September.
    10. Kathleen Carey & Theodore Stefos, 2011. "Controlling for quality in the hospital cost function," Health Care Management Science, Springer, vol. 14(2), pages 125-134, June.
    11. Jonathan S. Skinner & John Wennberg, 2000. "How Much Is Enough? Efficiency and Medicare Spending in the Last Six Months of Life," NBER Chapters,in: The Changing Hospital Industry: Comparing For-Profit and Not-for-Profit Institutions, pages 169-194 National Bureau of Economic Research, Inc.
    12. Cohen, Jeffrey P. & Morrison Paul, Catherine, 2008. "Agglomeration and Cost Economies for Washington State Hospital Services," Regional Science and Urban Economics, Elsevier, vol. 38(6), pages 553-564, November.
    13. Christoph Schwierz, 2009. "Expansion in Markets with Decreasing Demand – For-Profits in the German Hospital Industry," Ruhr Economic Papers 0106, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    14. C. A. Knox Lovell & Ana Rodríguez-Álvarez & Alan Wall, 2009. "The effects of stochastic demand and expense preference behaviour on public hospital costs and excess capacity," Health Economics, John Wiley & Sons, Ltd., vol. 18(2), pages 227-235.
    15. Kris Knox & Eric Blankmeyer & J. Stutzman, 1999. "Relative economic efficiency in Texas nursing facilities: A profit function analysis," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 23(3), pages 199-213, September.

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