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Analysis of Hospital Production: An Output Index Approach

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  • Martin S. Gaynor
  • Samuel A. Kleiner
  • William B. Vogt

Abstract

In this study, we develop and implement an output index approach to the estimation of hospital cost functions that reflects the differentiated nature of hospital care. The approach combines the estimation of an output index within a flexible functional form. We find, in an application to California hospitals, evidence of scope economies across specialties within primary care, and diseconomies of scope within secondary and tertiary care. Minimum efficient scale is reached at larger levels of output than would be estimated by conventional techniques. These results indicate the importance of accounting for firm output heterogeneity when estimating cost functions. Copyright © 2014 John Wiley & Sons, Ltd.

Suggested Citation

  • Martin S. Gaynor & Samuel A. Kleiner & William B. Vogt, 2015. "Analysis of Hospital Production: An Output Index Approach," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 30(3), pages 398-421, April.
    • Handle: RePEc:wly:japmet:v:30:y:2015:i:3:p:398-421
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    Cited by:

    1. Contreras Juan & Patel Elena & Tristao Ignez, 2013. "Production Factors, Productivity Dynamics and Quality Gains as Determinants of Healthcare Spending Growth in U.S. Hospitals," Working Papers 2013-13, Banco de México.
    2. Michael Freeman & Nicos Savva & Stefan Scholtes, 2021. "Economies of Scale and Scope in Hospitals: An Empirical Study of Volume Spillovers," Management Science, INFORMS, vol. 67(2), pages 673-697, February.
    3. Zack Cooper & Stuart V Craig & Martin Gaynor & John Van Reenen, 2019. "The Price Ain’t Right? Hospital Prices and Health Spending on the Privately Insured," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 134(1), pages 51-107.
    4. Vomhof, Markus, 2016. "Hospital competition with heterogeneous patient groups: Incentives and regulation," Ruhr Economic Papers 624, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    5. Rachet-Jacquet, Laurie & Gutacker, Nils & Siciliani, Luigi, 2021. "Scale economies in the health sector: The effect of hospital volume on health gains from hip replacement surgery," Journal of Economic Behavior & Organization, Elsevier, vol. 190(C), pages 704-729.
    6. John Romley & Erin Trish & Dana Goldman & Melinda Beeuwkes Buntin & Yulei He & Paul Ginsburg, 2019. "Geographic variation in the delivery of high-value inpatient care," PLOS ONE, Public Library of Science, vol. 14(3), pages 1-11, March.
    7. Zack Cooper & Amanda E. Kowalski & Eleanor Neff Powell & Jennifer Wu, 2017. "Politics, Hospital Behavior, and Health Care Spending Effect Methods to Examine Treatment Effect Heterogeneity in Experiments for the Young and Privately Insured?," Cowles Foundation Discussion Papers 3006, Cowles Foundation for Research in Economics, Yale University.
    8. Thanh An Nguyen Le & Anthony T. Lo Sasso, 2020. "Competition and market structure in the dental industry," International Journal of Health Economics and Management, Springer, vol. 20(2), pages 201-214, June.
    9. Zack Cooper & Amanda E. Kowalski & Eleanor Neff Powell & Jennifer Wu, 2017. "Politics, Hospital Behavior, and Health Care Spending," Cowles Foundation Discussion Papers 2106, Cowles Foundation for Research in Economics, Yale University.
    10. Andrew Sfekas, 2019. "Quality Competition and Intra-System Substitution in the Hospital Industry," American Journal of Health Economics, MIT Press, vol. 5(1), pages 65-96, Winter.
    11. Schmitt, Matt, 2017. "Do hospital mergers reduce costs?," Journal of Health Economics, Elsevier, vol. 52(C), pages 74-94.
    12. Zack Cooper & Amanda E Kowalski & Eleanor N Powell & Jennifer Wu, 2017. "Politics and Health Care Spending in the United States," NBER Working Papers 23748, National Bureau of Economic Research, Inc.

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