A reconsideration of economies of scale in the health care field

Analysis of Hospital Volume and Factors Influencing Economic Outcomes in Cancer Surgery: Results from a Population-based Study in Korea

Objectives

To evaluate associations between hospital volume, costs, and length of stay (LOS), and clinical and demographic outcome factors for five types of cancer resection. The main dependent variables were cost and LOS; the primary independent variable was volume.

Methods

Data were obtained from claims submitted to the Korean National Health Insurance scheme. We identified patients who underwent the following surgical procedures: pneumonectomy, colectomy, mastectomy, cystectomy, and esophagectomy. Hospital volumes were divided into quartiles.

Results

Independent predictors of high costs and long LOS included old age, low health insurance contribution, non-metropolitan residents, emergency admission, Charlson score > 2, public hospital ownership, and teaching hospitals. After adjusting for relevant factors, there was an inverse relationship between volume and costs/LOS. The highest volume hospitals had the lowest procedure costs and LOS. However, this was not observed for cystectomy.

Conclusion

Our findings suggest an association between patient and clinical factors and greater costs and LOS per surgical oncologic procedure, with the exception of cystectomy. Yet, there were no clear associations between hospitals’ cost of care and risk-adjusted mortality.

Estimating the cost to U.S. health departments to conduct HIV surveillance

OBJECTIVES

HIV case surveillance is a primary source of information for monitoring HIV burden in the United States and guiding the allocation of prevention and treatment funds. While the number of people living with HIV and the need for surveillance data have increased, little is known about the cost of surveillance. We estimated the economic cost to health departments of conducting high-quality HIV case surveillance.

METHODS

We collected primary data on the unit cost and quantity of resources used to operate the HIV case surveillance program in Michigan, where HIV burden (i.e., the number of HIV cases) is moderate to high (n=14,864 cases). Based on Michigan's data, we projected the expected annual HIV surveillance cost for U.S., state, local, and territorial health departments. We based our cost projection on the variation in the number of new and established cases, area-specific wages, and potential economies of scale.

RESULTS

We estimated the annual total HIV surveillance cost to the Michigan health department to be $1,286,524 ($87/case), the annual total cost of new cases to be $108,657 ($133/case), and the annual total cost of established cases to be $1,177,867 ($84/case). Our projected median annual HIV surveillance cost per health department ranged from $210,600 in low-HIV burden sites to $1,835,000 in high-HIV burden sites.

CONCLUSIONS

Our analysis shows that a systematic approach to costing HIV surveillance at the health department level is feasible. For HIV surveillance, a substantial portion of total surveillance costs is attributable to maintaining established cases.

Health service costs of paediatric cochlear implantation: influence of the scale and scope of activity

The health service cost of paediatric cochlear implantation (CI) varies among hospitals in the UK. The purpose of this study was to determine whether the variation is associated with differences in the scale and scope of activity in CI programmes. The health service cost of CI was estimated for 908 children implanted in 12 hospitals between 1989 and 1998. Annual levels of activity in implanting children and adults were monitored in the same hospitals. Costs of paediatric CI were lower in hospitals implanting larger numbers of children and adults, thereby benefiting from economies of scale and scope, respectively. These economies arose from lower per-child staff costs in larger programmes, and were estimated to be exhausted when a hospital implanted more than nine children and more than 20 adults each year. Accommodating increased numbers of children in an existing programme is predicted to cost less than setting up a new programme.

Relationships between Volume, Efficiency, and Quality in Surgery — A Delicate Balance from Managerial Perspectives

Volume, efficiency, and quality in hospital care are often mixed in debate. We analyze how these dimensions are interrelated in surgical hospital management, with particular focus on volume effects: under financial constraints, efficiency is the best form of cost control. External perception of quality is important to attract patients and gain volumes. There are numerous explicit and implicit notions of surgical quality. The relevance of implicit criteria (functionality, reliability, consistency, customaziability, convenience) can change in the time course of hospital competition. Outcome data theoretically are optimal measures of quality, but surgical quality is multifactorially influenced by case mix, surgical technique, indication, process designs, organizational structures, and volume. As quality of surgery is hard to grade, implicit criteria such as customizability currently often overrule functionality (outcome) as the dominant market driver. Activities and volumes are inputs to produce quality. Capability does not translate to ability in a linear function. Adequate process design is important to realize efficiency and quality. Volumes of activities, degree of standardization, specialization, and customer involvement are relevant estimates for process design in services. Flow-orientated management focuses primarily on resource utilization and efficiency, not on surgical quality. The relationship between volume and outcome in surgery is imperfectly understood. Factors involve learning effects both on process efficiency and quality, increased standardization and task specialization, process flow homogeneity, and potential for process integration. Volume is a structural component to develop efficiency and quality. The specific capabilities and process characteristics that contribute to surgical outcome improvement should be defined and exported. Adequate focus should allow even small institutions to benefit from volume-associated effects. All volumes-based learning within standardized processes will finally lead to a plateauing of quality. Only innovations will then further improve quality. Possessing volume can set the optimal ground for continuous process research, subsequent change, innovation, and optimization, while volume itself appears not to be a quality prerequisite.

Economies of scale in British intensive care units and combined intensive care/high dependency units

OBJECTIVE

To estimate the relationship between size of intensive care unit and combined intensive care/high dependency units and average costs per patient day.

DESIGN

Retrospective data analysis. Multiple regression of average costs on critical care unit size, controlling for teaching status, type of unit, occupancy rate and average length of stay.

SETTING

Seventy-two United Kingdom adult intensive care and combined intensive care/high dependency units submitting expenditure data for the financial year 2000-2001 as part of the Critical Care National Cost Block Programme.

INTERVENTIONS

None.

MEASUREMENTS AND RESULTS

The main outcome measures were total cost per patient day and the following components: staffing cost, consumables cost and clinical support services costs. Nursing Whole Time Equivalents per patient day were recorded. The unit size variable has a negative and statistically significant ( p<0.05) coefficient in regressions for total, staffing and consumables cost. The predicted average cost for a seven-bed unit is about 96% of that predicted for a six-bed critical care unit.

CONCLUSION

Policy makers should consider the possibility of economies of scale in planning intensive care and combined intensive care/high dependency units.

Regionalization of health services in Canada: a critical perspective

Since the introduction of universal health insurance in Canada in the late 1960s, the federal and provincial governments have been concerned with cost savings, efficiency of service delivery, equity in service provision, enhanced citizen participation, and increased accountability of decision-makers. A plethora of government royal commissions and task forces have recommended a similar range of options for addressing these concerns. Central to the reforms has been a proposed regionalized health system with an intermediary body responsible for functions previously assigned to local or central structures. For its supporters, regionalization offers a means of better coordinating and integrating health care delivery and controlling expenditures, and promises a more effective provision of services and an avenue for citizen participation in health care decision-making. All provincial governments except Ontario have introduced regional structures for health care, with the hope that these changes will increase efficiency, equity, and responsiveness. However, despite the alleged benefits, regionalization presents significant challenges. It faces obstacles to integrating and coordinating services in a manner that produces economies of scale; it requires an enhanced level of information that may be difficult to achieve; it is unlikely to involve citizens in health care decision-making; and it may actually lead to increased costs.

Economies of scale in non-revenue producing cost centers: implications for hospital mergers

This paper uses semiparametric methods to estimate the magnitude of economies of scale in 14 non-revenue producing cost centers in hospitals. There are substantial economies of scale in small hospitals, but economies are exhausted in hospitals with over 10,000 discharges annually. In recent hospital mergers challenged by federal antitrust agencies, one or both hospitals had over 10,000 discharges, suggesting that efficiency gains in non-revenue producing cost centers will be small, and could easily be offset by nominal price increases.

The impact of marketing on hospital performance

This study examines the effect of traditional and innovative marketing factors on the overall financial, operations and market performance of 71 not-for-profit hospitals in a metropolitan area. Traditional marketing factors of location, services offered and pricing did influence the financial performance of system-affiliated and non-system hospitals. They also influenced the operating performance of urban hospitals and the market performance of non-teaching institutions. In contrast, the innovative marketing factors of physician relations, community relations and specialized sales forces had no significant influence on performance differences among the hospitals in the entire sample and sub-samples based on geography, teaching involvement and system affiliation.