Efficient Bundling and Unbundling of Hospital Services: An Examination of Scale and Scope Economies in the Hospital Industry

117 p.Thesis (Ph.D.)--University of Illinois at Urbana-Champaign, 1988.The hospital industry is currently engaged in a process of establishing free standing facilities for the treatment of certain patients, such as emergency or outpatient surgery clinics. This "unbundling" of services from the traditional hospital setting has motivated researchers to study the production technology of a hospital in order to determine which pairs of services exhibit economies or disconomies of scope. In addition, the literature concerning scale economies in the hospital industry has yielded conflicting results as to the optimal size for a hospital. Therefore, this research attempts to identify those pairs of hospital services exhibiting economies or diseconomies of scope and determine the degree of scale economies present in the production of hospital services. The process involves the estimation of three separate multiproduct cost functions (the translog, the hybrid translog, and the CES translog) as measured over eight output groups defined by the DRG classification scheme. The results support the unbundling of such services as diseases and disorders of the eyes, but indicate no cost savings from the establishment of free standing emergency, outpatient, or ophthamalogic clinics which already exist in the market. Finally, estimates of economies of scale suggest that significant cost reductions can be realized in the industry if the number of patients treated by hospitals is greatly increased.U of I OnlyRestricted to the U of I community idenfinitely during batch ingest of legacy ETD