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Measuring inpatient and outpatient costs: a cost-function approach
1Management Science Group, U.S. Department of Veterans Affairs, Bedford, MA 01730.
Health Care Financing Review
|December 4, 1992
Summary
Hospital costs were analyzed, revealing that outpatient costs grew proportionally to inpatient costs. This stability suggests declining relative unit costs offset increased outpatient utilization and revenue.
Area of Science:
- Health Economics
- Hospital Management
- Cost Analysis
Background:
- Understanding the drivers of hospital costs is crucial for effective healthcare management.
- Disaggregating total hospital costs into inpatient and outpatient components provides a clearer financial picture.
- Previous analyses have not fully captured the dynamic relationship between inpatient and outpatient cost structures.
Purpose of the Study:
- To estimate a multiple-output cost function for hospitals.
- To disaggregate total hospital costs into inpatient and outpatient components.
- To analyze the relationship between inpatient and outpatient cost growth, revenue, and utilization.
Main Methods:
- Utilized a sample of 2,235 hospitals from 1984-1988.
- Estimated a multiple-output cost function.
- Disaggregated total costs into inpatient and outpatient expenditures.
Main Results:
- Outpatient cost growth was found to be proportional to inpatient cost growth.
- Despite higher relative growth in outpatient revenues and utilization, the outpatient/inpatient cost ratio remained stable.
- A decline in relative unit costs for outpatient services offset the increase in outpatient-to-inpatient utilization.
Conclusions:
- The findings indicate a balanced cost dynamic between inpatient and outpatient hospital services.
- Relative unit cost reductions in outpatient care are a key factor in maintaining cost proportionality.
- This study provides insights into the financial management of evolving hospital service delivery models.