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Home health care cost-function analysis.

J W Hay, G Mandes

    Health Care Financing Review
    |January 5, 1985
    PubMed
    Summary
    This summary is machine-generated.

    Home health care (HHC) agencies show U-shaped average cost curves, indicating diseconomies of scale. Most agencies operate below optimal output, suggesting potential economic inefficiencies in cost-based reimbursement policies.

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    Area of Science:

    • Health Economics
    • Healthcare Management

    Background:

    • Home health care (HHC) is a growing sector facing challenges in cost efficiency.
    • Traditional nonprofit HHC agencies operate under various state regulations and reimbursement models.

    Purpose of the Study:

    • To develop an exploratory cost-function model for traditional nonprofit home health care agencies.
    • To analyze the relationship between output levels and average costs for skilled nursing visits.
    • To identify potential economic inefficiencies in cost-based HHC reimbursement.

    Main Methods:

    • Estimation of a cost-function model using State rate-setting data.
    • Analysis of data from 74 traditional nonprofit Connecticut home health care agencies.
    • Examination of average cost curves and diseconomies of scale.

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    Main Results:

    • Demonstrated U-shaped average cost curves for skilled nursing visits.
    • Observed substantial diseconomies of scale within the analyzed range.
    • Found that agencies typically provide fewer visits than optimal, with marginal costs below average costs.

    Conclusions:

    • Agency costs are primarily driven by output levels, with minimal variation from other characteristics.
    • Economic inefficiencies may be significant under cost-based home health care reimbursement policies.
    • Findings suggest a need to re-evaluate HHC reimbursement structures to improve efficiency.