Nicos Savva, London Business School
Nicos Savva, London Business School
Economies of Scale and Scope in Hospitals
Economies of Scale and Scope in Hospitals
General hospitals across the world are becoming larger (i.e. admitting larger volumes of patients each year) and more complex (i.e. offering more complex portfolios of services to patients with diverse levels of acuity). Although prior work has shown that increased volume is positively associated with patient outcomes, it is less clear how volume interacts with organizational complexity to affect costs across service lines and acuity levels. This paper investigates this relationship using panel data for 14 service lines comprising both elective and emergency admissions across 130 hospitals in England over a period of nine years. Although we find significant economies of scale for both elective and emergency admissions, we also find evidence of negative economies of scope across the two admission types, with increased elective volume at a hospital being associated with an increase in the cost of emergency care. Furthermore, for emergency admissions we find evidence of economies of scope across service lines – increased emergency activity in one service line is associated with lower costs of emergency care in other service lines. By contrast, we find no evidence of such economies of scope across service lines for elective admissions. Our findings have implications for individual hospitals and for the organization of regional hospital systems. Specifically, at the hospital level our findings suggest that growth strategies that target elective patients may have unintended negative productivity implications for emergency services. At the regional level, our findings offer support for the reorganization of regional hospital systems toward general hospitals that focus on the provision of emergency care across a full range of services, complemented by high-volume clinics that focus on elective services in a single service line. This paper is joint work with Michael Freeman and Stefan Scholtes.