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Hospital cost efficiency and system membership.
1Management Science Group, U.S. Department of Veterans Affairs, Bedford, MA 01730, USA.
Summary
Hospital system consolidation around physician and insurance arrangements can improve efficiency. Policymakers should consider these organizational structures when evaluating potential gains from hospital mergers.
Area of Science:
- Health Economics
- Healthcare Management
- Organizational Studies
Background:
- Hospital systems are increasingly consolidating, necessitating an understanding of organizational structures that promote efficiency.
- Previous evaluations of hospital consolidation have often focused broadly on common ownership, potentially overlooking nuanced organizational strategies.
Purpose of the Study:
- To assess inefficiency differences among hospital system organizations based on a new taxonomy.
- To identify specific strategic and structural characteristics associated with greater cost efficiency in hospital systems.
Main Methods:
- Estimation of a stochastic frontier cost function using a novel hospital organization taxonomy.
- Comparative analysis of system hospitals with shared strategic and structural attributes.
Main Results:
- Hospital systems centralizing physician arrangements and insurance products demonstrated the lowest deviations from the least-cost frontier.
- Efficiency benefits were observed when physician and insurance activities were organized at the system level.
Conclusions:
- Centralizing physician and insurance operations within hospital systems, while allowing individual members discretion over service offerings, can yield significant efficiency gains.
- Policymakers should recognize that the benefits of hospital consolidation are contingent on specific organizational strategies, not just common ownership.