Cost structure of osteopathic hospitals and their local counterparts in the USA: Are they any different?

Due to the emphasis on preventive care and less invasive solutions to medical problems, osteopathic hospitals may deliver cost efficient and cost effective care. This study examines the cost structure of osteopathic hospitals and compares their performance to a local control group selected from allopathic hospitals. Osteopathic hospitals are identified in the 1999 American Hospital Association (AHA) data and matched to local allopathic hospitals with respect to location, bed size, system, for-profit and teaching status. Cost functions are estimated for both groups of hospitals, and significant differences in input, output and costs are highlighted. Results show that osteopathic hospitals are more costly and less productive in comparison to their counterparts. Inefficient production of outpatient services and high cost of medical education are two reasons for the poor performance. The study has important policy implications on two fronts: first, osteopathic hospitals are more costly to operate than their counterparts, and subsequently this requires further analysis of the osteopathic treatments and techniques. In an environment where health care revenues are shrinking and costs are rising, this is probably much needed information for osteopathic hospitals. Secondly, there is an emerging concern among osteopathic medical schools and osteopathic physicians due to the declining number of osteopathic hospitals, which translates to a smaller number of residency positions for osteopathic medical school graduates. Analyzing cost, input and output variables reveal some of the contributing factors to the decline of osteopathic hospitals and help preserve this rich tradition.