Cost structures in a large hospital for the mentally handicapped

Health authorities in the U.K. have, in recent years, become increasingly aware of the financial costs of health care provision, and have sought ways in which such costs can be reduced without detriment to the service provided. This study estimates cost functions for the case of a large hospital treating the mentally handicapped. Factors which influence the variation of costs between wards in the same hospital include, inter alia, the age of the residents, the severity of their handicap and the number of residents living on the ward. Costs vary non-linearly with the latter of those variables, and so the possible existence of an optimal ward size emerges. The paper concludes with the estimation of this optimum, together with an examination of factors which might cause the optimal ward size to vary.