Premium
Assessing Economies of Scale in Public Hospitals
Author(s) -
Zhao Yuejen,
Foley Margaret,
Eagar Kathy
Publication year - 2011
Publication title -
economic papers: a journal of applied economics and policy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.245
H-Index - 19
eISSN - 1759-3441
pISSN - 0812-0439
DOI - 10.1111/j.1759-3441.2011.00123.x
Subject(s) - economies of scale , scale (ratio) , phenomenon , economics , elasticity (physics) , econometrics , economy , demographic economics , business , geography , microeconomics , physics , cartography , quantum mechanics , materials science , composite material
Under a new national agreement, public hospitals in Australia will be funded on activities. This article seeks to determine whether economies of scale exist in public hospitals and, if so, to develop a possible funding adjustment for the differences. Scatter diagrams, data transformation and a multilevel model were used to describe the phenomenon. Ray scale elasticity was used to assess the overall economies of scale. The results demonstrate the existence of substantial scale economies in public hospitals and a clear negative log‐linear association between average cost and activity. A 10‐fold increase in hospitalisations may result in a 10 per cent decrease in average costs.