Hospital Cost Analysis

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This text provides an overview of the theoretical developments in the economic analysis of production and costs in the multiproduct firm, and discusses these developments. Following an explanation of the concepts of jointness, input/output separability and returns to scale, a discussion of the concept measurement and classification of hospital output is provided. A fundamental dilemma confronting economists interested in estimating hospital cost functions is highlighted, viz. the trade-off between flexibility in functional form and homogeneity within hospital output categories. Empirical results on the effects of case mix, scale and utilization, public/private ownership, and the centralized administration of hospital systems on hospital costs are presented. The implications of hospital cost analysis for public policy with respect to hospital payment schemes, including schemes based on Diagnosis Related Groups (DRGs), are also considered. This book brings together the literature on hospital cost analysis with theoretical developments in the analysis of the multiproduct cost functions. It should be of considerable interest to teachers and students of health economics and health-policy advisers interested in the determinants of hospital costs and the design of hospital payment schemes.