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Hospital Costs and the Cost of Empty Hospital Beds

Listed author(s):
  • 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.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3872.

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Date of creation: Oct 1991
Publication status: Published as "Uncertain Demand, the Structure of Hospital Costs, and the Cost of Empty Hospital Beds", Journal of Health Economics, Vol. 14, no. 3 (1995): 291-317.
Handle: RePEc:nbr:nberwo:3872
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  1. MacKinnon, James G. & White, Halbert & Davidson, Russell, 1983. "Tests for model specification in the presence of alternative hypotheses : Some further results," Journal of Econometrics, Elsevier, vol. 21(1), pages 53-70, January.
  2. Michael Rothschild & Gregory J. Werden, 1979. "Returns to Scale From Random Factor Services: Existence and Scope," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 329-335, Spring.
  3. Breusch, T S & Pagan, A R, 1979. "A Simple Test for Heteroscedasticity and Random Coefficient Variation," Econometrica, Econometric Society, vol. 47(5), pages 1287-1294, September.
  4. Koenker, Roger, 1981. "A note on studentizing a test for heteroscedasticity," Journal of Econometrics, Elsevier, vol. 17(1), pages 107-112, September.
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