E&F - lecture 8 Flashcards
the healthcare production function
Measures the relationship between output in terms of patients treated (per diagnosis) or activities performed (e.g. admissions, hospital days) and healthcare inputs used
Isoquants
Isoquants depict the relationship between a certain level of output (Q) and technically efficient combinations of inputs used in the production proces
Complements
cannot be substituted for one another, so you need both in the production process. Optimum is at the corner of the isoquant. The least inputs are used in the production process. It does not make sense to expend one. Only require a higher level of production if you increase both inputs. Then you can go from level Q1 to Q2. Price does not matter that much.
Perfect substitutes
for example it does not matter if a patient is treated in a white or grey hospital bed. The only importance is the price difference between those two. If white is cheaper, you probably will only buy white beds. Here, you probably one chose the cheapest one. Price is dominant.
Imperfect substitutes
surgeons can take over some tasks of nurses and the other way around, but clearly the cannot perform all tasks. If you have more surgeons, you are less willing to give up a nurse for an extra surgeon, because you also need nurses. If you have more of one input, the marginal productivity of this input will reduce relative to the marginal productivity of the other input. The more surgeons you have, the more valuable the nurses become. And the other way around.
Production functions describes the use of production technology:
- how can healthcare inputs be combined to produce a certain output?
- how easily can one production factor be substituted for others?
cost function
- Cost functions describe the relationship between production costs and output levels at different input prices
Economies of scale
a firm is said to experience economies of scale when its long-run average cost (=TC/Q) is declining as output increases
How efficient are hospitals?
Difficulties faced by all hospital cost studies:
* Measuring output
‒ Enormous heterogeneity of products: the “case-mix problem”
‒ Defining and measuring quality of care
* Measuring inputs and input prices
‒ Lack of reliable measures
‒ Lack of data on physicians’ input prices
Technical efficiency
A firm is most technical efficient when it uses the least inputs to produce a given level of output
Allocative efficiency
A firm is allocative efficient when it uses the least cost combination of inputs to produce a given level of output, least-cost combination of inputs
- Non-frontier studies
actual outputs or cost experiences for two or more groups of firms are compared while attempting to control for the effect of extraneous variables
- Frontier studies:
actual outputs or firm costs are compared to the most efficient (best practice) firms that are situated on a “frontier”
- Data Envelopment Analysis (DEA) – frontier is linear combination
- Based on hospital data of comparable hospitals a frontiers of the most technically efficient hospitals is constructed as linear combination of hospitals using proportionally the least inputs per unit of output
- Stochastic Frontier Analysis (SFA) – frontier is estimated
Empirical findings on hospital economies of scale
Findings most recent systematic literature review (Giancotti et al. 2017):
- Most studies use DEA to compare hospital efficiency
- Most studies suggest increasing returns to scale up to 300–600 hospital beds
However, scale economies might be underestimated because:
‒ imperfect quality measures
‒ unobserved output heterogeneity (imperfect case-mix adjustment)
Studies are inconclusive about relationship hospital size and quality
‒ except for certain complex surgical procedures
- Why do isoquants never intersect?
o because of positive marginal returns of production: each additional input has a positive effect on the quantity of output produced. If you add 1 extra nurse it does positively outcome the hospital (maybe extra patient) isoquant is always about quantity
