Hospital Costs


Health Economics

  • Hospital cost analysis has been mainly concerned with the use of routine data either to explain apparent differences in unit costs or to inform decisions about what the appropriate 'allowances' might be to compensate hospitals for 'teaching' or 'research'. All studies are beset with the problem of coping with varying degrees of technical efficiency and X-inefficiency (as when hospitals are not located on isoquants), varying degrees of 'difficulty' of patient cases and dating of the endpoint at which the health output is assessed (which is often after discharge from hospital), differences in case-mix, and imperfect specification of outputs, which leads to problems of omitted variable bias. The literature is highly technical and considerable imagination is given to the solution of these and other difficulties. While carefully conducted econometric analysis of hospital costs can be of great value in practical decision-making, to use it well requires sophistication and the ability to integrate it into a wider understanding of the hospital world.