Measuring economies of scale at the city market level

Data envelopment analysis (DEA) techniques have been applied to the assessing efficiency and productivity among individual hospitals. In this article, we employ DEA to address whether economies of scale exist among hospital markets by first assessing individual hospitals operating in 2005 in the State of Florida and then by comparing hospital markets' efficiency relative to each other. The interest in hospital markets stems from issues relating to mergers among hospitals or the reallocation of services (inputs) among hospitals in a market area, particularly as occupancy rates and reimbursements are tending to fall. Facing more competition and stringent financial conditions, hospitals would benefit from decreasing costs by exploiting economies of scale.