IDEAS home Printed from https://ideas.repec.org/a/wly/hlthec/v4y1995i6p467-478.html
   My bibliography  Save this article

Investigating hospital efficiency in the new NHS: The role of the translog cost function

Author

Listed:
  • Anthony Scott
  • David Parkin

Abstract

The reforms to the United Kingdom's National Health Service (NHS) of recent years have greatly increased the role of economic incentives in the hospital sector. Hospitals now have to compete for the business of GP and health authority purchasers and are assumed to have an incentive to minimise costs. This makes the analysis of cost functions much more relevant than has previously been the case. The objective of this paper is to assess the potential usefulness of the translog cost function applied in the NHS internal market. Three main issues are identified that limit the role of this type of cost function in the internal market: the adequacy of the econometric model (including data quality); the assumptions underlying the model, and; the interpretation of economies of scale, marginal costs and economies of scope that can be derived from such a cost function. It is concluded that at present the application of translog cost function analysis in the NHS is of limited usefulness, but that it does indicate areas for further methodological research.

Suggested Citation

  • Anthony Scott & David Parkin, 1995. "Investigating hospital efficiency in the new NHS: The role of the translog cost function," Health Economics, John Wiley & Sons, Ltd., vol. 4(6), pages 467-478, November.
    • Handle: RePEc:wly:hlthec:v:4:y:1995:i:6:p:467-478
    DOI: 10.1002/hec.4730040604
    as

    Download full text from publisher

    File URL: https://doi.org/10.1002/hec.4730040604
    Download Restriction: no
    File URL: https://libkey.io/10.1002/hec.4730040604?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Diane Dawson, 1994. "Costs and prices in the internal market: markets vs the NHS Management Executive Guidelines," Working Papers 115chedp, Centre for Health Economics, University of York.
    2. Baumol, William J, 1982. "Contestable Markets: An Uprising in the Theory of Industry Structure," American Economic Review, American Economic Association, vol. 72(1), pages 1-15, March.
    3. Christensen, Laurits R & Jorgenson, Dale W & Lau, Lawrence J, 1973. "Transcendental Logarithmic Production Frontiers," The Review of Economics and Statistics, MIT Press, vol. 55(1), pages 28-45, February.
    4. Rajiv D. Banker & Robert F. Conrad & Robert P. Strauss, 1986. "A Comparative Application of Data Envelopment Analysis and Translog Methods: An Illustrative Study of Hospital Production," Management Science, INFORMS, vol. 32(1), pages 30-44, January.
    5. 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.
    6. 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 477-481, August.
    7. Grannemann, Thomas W. & Brown, Randall S. & Pauly, Mark V., 1986. "Estimating hospital costs : A multiple-output analysis," Journal of Health Economics, Elsevier, vol. 5(2), pages 107-127, June.
    8. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
    9. Okunade, Albert Ade, 1993. "Production Cost Structure of U.S. Hospital Pharmacies: Time-Series, Cross-Sectional Bed Size Evidence," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(3), pages 277-294, July-Sept.
    10. Nelson, Randy A., 1985. "Returns to scale from variable and total cost functions : Evidence from the electric power industry," Economics Letters, Elsevier, vol. 18(2-3), pages 271-276.
    11. Vita, Michael G., 1990. "Exploring hospital production relationships with flexible functional forms," Journal of Health Economics, Elsevier, vol. 9(1), pages 1-21, June.
    12. Breyer, Friedrich, 1987. "The specification of a hospital cost function : A comment on the recent literature," Journal of Health Economics, Elsevier, vol. 6(2), pages 147-157, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Giuffrida, Antonio & Gravelle, Hugh & Sutton, Matthew, 2000. "Efficiency and administrative costs in primary care," Journal of Health Economics, Elsevier, vol. 19(6), pages 983-1006, November.
    2. Oliveira, Monica D. & Bevan, Gwyn, 2008. "Modelling hospital costs to produce evidence for policies that promote equity and efficiency," European Journal of Operational Research, Elsevier, vol. 185(3), pages 933-947, March.
    3. Liu, Xingzhu & Hotchkiss, David R. & Bose, Sujata, 2007. "The impact of contracting-out on health system performance: A conceptual framework," Health Policy, Elsevier, vol. 82(2), pages 200-211, July.
    4. repec:rdg:wpaper:em-dp2004-19 is not listed on IDEAS
    5. Monica Giancotti & Annamaria Guglielmo & Marianna Mauro, 2017. "Efficiency and optimal size of hospitals: Results of a systematic search," PLOS ONE, Public Library of Science, vol. 12(3), pages 1-40, March.
    6. Pankaj Bahuguna & Lorna Guinness & Sameer Sharma & Akashdeep Singh Chauhan & Laura Downey & Shankar Prinja, 2020. "Estimating the Unit Costs of Healthcare Service Delivery in India: Addressing Information Gaps for Price Setting and Health Technology Assessment," Applied Health Economics and Health Policy, Springer, vol. 18(5), pages 699-711, October.
    7. Vassilis H. Aletras, 1999. "A comparison of hospital scale effects in short‐run and long‐run cost functions," Health Economics, John Wiley & Sons, Ltd., vol. 8(6), pages 521-530, September.
    8. Suraratdecha, Chutima & Okunade, Albert A., 2006. "Measuring operational efficiency in a health care system: A case study from Thailand," Health Policy, Elsevier, vol. 77(1), pages 2-23, June.
    9. Productivity Commission, 2009. "Public and Private Hospitals," Research Reports, Productivity Commission, Government of Australia, number 37.
    10. Alessandra Ferrari, 2006. "NHS Reforms and efficiency of hospital services: a stochastic distance function apporach," Economic Analysis Research Group Working Papers earg-wp2006-06, Henley Business School, University of Reading.
    11. Wang, Jian & Zhao, Zhong & Mahmood, Amir, 2006. "Relative Efficiency, Scale Effect, and Scope Effect of Public Hospitals: Evidence from Australia," IZA Discussion Papers 2520, Institute of Labor Economics (IZA).
    12. Alexander S. Preker & Xingzhu Liu & Edit V. Velenyi & Enis Baris, 2007. "Public Ends, Private Means : Strategic Purchasing of Health Services," World Bank Publications - Books, The World Bank Group, number 6683.
    13. Albert A. Okunade & Chutima Suraratdecha, 1998. "Cost efficiency, factor interchange, and technical progress in US specialized hospital pharmacies," Health Economics, John Wiley & Sons, Ltd., vol. 7(4), pages 363-371, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Vassilis H. Aletras, 1999. "A comparison of hospital scale effects in short‐run and long‐run cost functions," Health Economics, John Wiley & Sons, Ltd., vol. 8(6), pages 521-530, September.
    2. Wagstaff, Adam & Barnum, Howard, 1992. "Hospital cost functions for developing countries," Policy Research Working Paper Series 1044, The World Bank.
    3. Ajayi, Victor & Weyman-Jones, Thomas & Glass, Anthony, 2017. "Cost efficiency and electricity market structure: A case study of OECD countries," Energy Economics, Elsevier, vol. 65(C), pages 283-291.
    4. Koop, G. & Osiewalski, J. & Steel, M.F.J., 1994. "Hospital efficiency analysis through individual effects : A Bayesian approach," Discussion Paper 1994-47, Tilburg University, Center for Economic Research.
    5. Preyra, Colin & Pink, George, 2006. "Scale and scope efficiencies through hospital consolidations," Journal of Health Economics, Elsevier, vol. 25(6), pages 1049-1068, November.
    6. Engberg, John & Wholey, Douglas & Feldman, Roger & Christianson, Jon B., 2004. "The effect of mergers on firms' costs: evidence from the HMO industry," The Quarterly Review of Economics and Finance, Elsevier, vol. 44(4), pages 574-600, September.
    7. Jean-Philippe Boussemart & Herv頌eleu & Vivian Valdmanis, 2015. "A two-stage translog marginal cost pricing approach for Floridian hospital outputs," Applied Economics, Taylor & Francis Journals, vol. 47(38), pages 4116-4127, August.
    8. Farsi, Mehdi & Filippini, Massimo, 2009. "An analysis of cost efficiency in Swiss multi-utilities," Energy Economics, Elsevier, vol. 31(2), pages 306-315, March.
    9. Siciliani, Luigi & Stanciole, Anderson & Jacobs, Rowena, 2009. "Do waiting times reduce hospital costs?," Journal of Health Economics, Elsevier, vol. 28(4), pages 771-780, July.
    10. Koop, Gary & Osiewalski, Jacek & Steel, Mark F. J., 1997. "Bayesian efficiency analysis through individual effects: Hospital cost frontiers," Journal of Econometrics, Elsevier, vol. 76(1-2), pages 77-105.
    11. Chang, Hsihui & Cheng, Mei-Ai & Das, Somnath, 2004. "Hospital ownership and operating efficiency: Evidence from Taiwan," European Journal of Operational Research, Elsevier, vol. 159(2), pages 513-527, December.
    12. 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.
    13. Helda Azevedo & Céu Mateus, 2014. "Cost effects of hospital mergers in Portugal," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 15(9), pages 999-1010, December.
    14. Pope, Gregory C. & Burge, Russel T., 1995. "The marginal practice cost of physicians' services," Socio-Economic Planning Sciences, Elsevier, vol. 29(1), pages 1-16, March.
    15. Sinay, Tony, 2005. "Cost structure of osteopathic hospitals and their local counterparts in the USA: Are they any different?," Social Science & Medicine, Elsevier, vol. 60(8), pages 1805-1814, April.
    16. Gaynor, Martin & Anderson, Gerard F., 1995. "Uncertain demand, the structure of hospital costs, and the cost of empty hospital beds," Journal of Health Economics, Elsevier, vol. 14(3), pages 291-317, August.
    17. H. Naci Mocan, 1995. "The Child Care Industry: Cost Functions, Efficiency, and Quality," NBER Working Papers 5293, National Bureau of Economic Research, Inc.
    18. Tong Li & Robert Rosenman, 2001. "Estimating hospital costs with a generalized Leontief function," Health Economics, John Wiley & Sons, Ltd., vol. 10(6), pages 523-538, September.
    19. Ricardo Gonçalves & Pedro Pita Barros, 2013. "Economies of scale and scope in the provision of diagnostic techniques and therapeutic services in Portuguese hospitals," Applied Economics, Taylor & Francis Journals, vol. 45(4), pages 415-433, February.
    20. Given, Ruth S., 1996. "Economies of scale and scope as an explanation of merger and output diversification activities in the health maintenance organization industry," Journal of Health Economics, Elsevier, vol. 15(6), pages 685-713, December.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:hlthec:v:4:y:1995:i:6:p:467-478. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www3.interscience.wiley.com/cgi-bin/jhome/5749 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.