Cost and Efficiency in the Production of Hospital Services

This paper summarizes the general findings of a research effort designed to complete a detailed analysis to identify and measure the effects of factors which significantly affect the cost and efficiency of the short-term general hospital system in the United States. The empirical analysis involved data on approximately 6,000 hospitals for the years 1965, 1966, and 1967 and involved a model which expressed hospital cost as a function of the level of output, the quality of services provided, the scope of services provided, factor prices, and relative efficiency. The statistical analysis does provide insight to the factors affecting hospital cost: hospital services are produced subject to economies of scale but the absolute magnitudes are rather insignificant; on the basis of the exceedingly limited data available it can be concluded that quality does affect costs; medical education is a significant factor affecting hospital costs; and product mix has a significant impact on costs. Three separate analyses are summarized specific to the product mix difference aspect of the production of hospital services, its effect on hospital cost analysis, and techniques that can be employed to account for product mix. Finally, an analysis of the characteristics of high cost and low cost hospitals is summarized.

Author(s): Ralph E. Berry,

Download the Article

Read on JSTOR

Volume 52, Issue 3 (pages 291–313)
Published in 1974