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The costs of new organisational and financial freedom: The case of English NHS trusts

In this paper we estimate hospital costs and evaluate economies of scale and scope using a generalised multiproduct cost function and a sample of English NHS trusts with different types of ownership, namely Foundation Trusts and non Foundation Trusts. Evaluating the behaviour of different types of hospitals separately might be particularly helpful for the design, and future developments, of the optimal provider reimbursement tariff. Also it might shed some light on the ability of different types of hospitals to profit from the existence of economies of scale and scope. Results show that, even though these two group of providers do not exhibit differences regarding economies of scale, Foundation Trusts exhibit global diseconomies of scope while non Foundation Trusts exhibit global scope economies.

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Paper provided by HEDG, c/o Department of Economics, University of York in its series Health, Econometrics and Data Group (HEDG) Working Papers with number 09/26.

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Date of creation: Jul 2009
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Handle: RePEc:yor:hectdg:09/26
Contact details of provider: Postal: HEDG/HERC, Department of Economics and Related Studies, University of York, York, YO10 5DD, United Kingdom
Phone: (0)1904 323776
Fax: (0)1904 323759
Web page: http://www.york.ac.uk/economics/postgrad/herc/hedg/
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  1. Caves, Douglas W & Christensen, Laurits R & Tretheway, Michael W, 1980. "Flexible Cost Functions for Multiproduct Firms," The Review of Economics and Statistics, MIT Press, vol. 62(3), pages 477-81, August.
  2. Vita, Michael G., 1990. "Exploring hospital production relationships with flexible functional forms," Journal of Health Economics, Elsevier, vol. 9(1), pages 1-21, June.
  3. Dor, Avi & Farley, Dean E., 1996. "Payment source and the cost of hospital care: Evidence from a multiproduct cost function with multiple payers," Journal of Health Economics, Elsevier, vol. 15(1), pages 1-21, February.
  4. Vitaliano, Donald F., 1987. "On the estimation of hospital cost functions," Journal of Health Economics, Elsevier, vol. 6(4), pages 305-318, December.
  5. Fournier, G.M. & Mitchell. J.M., 1991. "Hospital Costs and Competition for Services : A Multiproduct Analysis," Working Papers 1991_03_6, Department of Economics, Florida State University.
  6. Smet, Mike, 2002. "Cost characteristics of hospitals," Social Science & Medicine, Elsevier, vol. 55(6), pages 895-906, September.
  7. Braeutigam, Ronald R. & Daughety, Andrew F., 1983. "On the estimation of returns to scale using variable cost functions," Economics Letters, Elsevier, vol. 11(1-2), pages 25-31.
  8. Giovanni Fraquelli & Massimiliano Piacenza & Davide Vannoni, 2004. "Scope and scale economies in multi-utilities: evidence from gas, water and electricity combinations," Applied Economics, Taylor & Francis Journals, vol. 36(18), pages 2045-2057.
  9. Caves, Douglas W & Christensen, Laurits R & Swanson, Joseph A, 1981. "Productivity Growth, Scale Economies, and Capacity Utilization in U.S. Railroads, 1955-74," American Economic Review, American Economic Association, vol. 71(5), pages 994-1002, December.
  10. Hughes, David & McGuire, Alistair, 2003. "Stochastic demand, production responses and hospital costs," Journal of Health Economics, Elsevier, vol. 22(6), pages 999-1010, November.
  11. Berndt, Ernst R. & Christensen, Laurits R., 1973. "The translog function and the substitution of equipment, structures, and labor in U.S. manufacturing 1929-68," Journal of Econometrics, Elsevier, vol. 1(1), pages 81-113, March.
  12. Preyra, Colin & Pink, George, 2006. "Scale and scope efficiencies through hospital consolidations," Journal of Health Economics, Elsevier, vol. 25(6), pages 1049-1068, November.
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