Estimating hospital costs with a generalized Leontief function

Abstract

This paper estimates a long-run hospital cost function with multiple outputs and inputs using a panel data set from Washington State hospitals during 1988-1993. We find that with our data the generalized Leontief function is more appropriate than a translog for estimating hospital cost functions. With respect to hospital costs, we find that hospitals readily adjust the use of intermediate products. Radiology, therapies and surgery, and other inpatient days, all serve as substitutes for core inpatient days. Outpatient services are found to be complementary to core inpatient services, indicating that the growth of stand-alone outpatient clinics might increase the costs of providing healthcare services. Our analysis finds that hospitals show significant economies of scale, but there is a limited amount of evidence of scope economies. Also, there is some evidence that profit-seeking hospitals achieve some of their goals by controlling costs, and that diagnostically related groups (DRG)-based Medicare services are effective in getting hospitals to control costs.

Effects of ownership, subsidization and teaching activities on hospital costs in Switzerland

“…While some studies (Eakin, 1991;Steinmann and Zweifel, 2003) conclude no significant differences, a few others (Li and Rosenman, 2001;Carey, 1997) report slightly lower costs in for-profit hospitals compared to non-profit ones. In this paper, the effects of ownership/subsidization status on efficiency are studied using a two-stage method.…”

Energy-Extended CES Aggregate Production: Current Aspects of Their Specification and Econometric Estimation

“…Instead, this is undertaken by Heun et al [35], which is an empirical complement to this landscape paper, where four key modelling choices are examined to establish the differences in resulting CES parameter values, and the potential effects on downstream energy policy. Third, by considering only C-D and CES aggregate production functions, we exclude further discussion on less popular aggregate production functions (e.g., translog [36], variable elasticity of substitution (VES) [37], linear exponential (LINEX) [38], linear [39] and Leontief [40] functions) and cost functions-which are a price-based alternative to production functions [36,[41][42][43]. We also limit widespread further discussion on the important class of capital-labour-energy-material (KLEM) CES-based production functions.…”

Competition and market power in physician private practices

“…The most advantageous feature of the generalized Leontief in a physician services setting is its response to zero outputs. Li and Rosenman (2001) use a multi-product generalized Leontief cost function for their two-product study of the hospital industry. 17 The Leontief has traditionally been used in a single output setting; however its extension to the multi-output setting has been seen in 14 We refer the reader to the Escarce and Pauly (1998) for a detailed derivation.…”

“…The traditional approach for deriving marginal cost estimates at the mean is to use the parameter estimates from the cost equation and the mean estimates from the data to "back-out" a measure, with standard errors obtained via the delta method. Since our marginal costs are non-linear, we prefer the approach by Li and Rosenman (2001) which consists of using the parameter estimates from the cost equation to obtain a unique marginal cost for each of the observations. We average over the sample and obtain standard errors by dividing the standard deviations by the square root of the sample size.…”

“…Li and Rosenman (2001) suggest the method by Vita (1990), which indicates that weak cost complementarities are a sufficient condition for economies of scope (i.e. if 0…”