Stochastic demand, production responses and hospital costs

This paper considers the production responses to demand uncertainty within the hospital sector. It is noted that such responses have an impact on hospital cost structures. An empirical model is specified. Estimation is undertaken on a sample of UK hospitals over the period 1993-1995, differentiating between hospital output which arises from uncertain demand (emergency treatment) and output considered to be predictable (elective treatment). The model estimates that the cost of an elective admission is approximately 45% of the cost of an emergency admission. Demand uncertainty imposes a direct cost equivalent to around 5% of the total cost of emergency admission.