Economies of Scale and Scope in Hospitals:
An Empirical Study of Volume Spillovers
Submitted to Management Science.
Michael Freeman, INSEAD
Nicos Savva, London Business School
Stefan Scholtes, Cambridge Judge Business School
General hospitals across the world are becoming larger (i.e. admitting more patients each year) and more complex (i.e. offering a wider range of services to higher acuity patients with more diverse care needs). Although prior work has shown that increased volume is positively associated with patient outcomes, it is less clear how volume affects costs in these complex organizations. This paper investigates this relationship using panel data for 15 specialties comprising both elective and emergency admissions across 157 hospitals in England over a period of ten years. Although we find significant economies of scale for both elective and emergency admissions, we also find evidence of negative spillovers across the two admission categories, 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 positive spillovers across specialties - increased emergency activity in one specialty is associated with lower costs of emergency care in other specialties. By contrast, we find no evidence of such spillovers across specialties for elective admissions. Our findings have implications for individual hospital growth strategies and for the regional organization of hospital systems.
Health care; Productivity; Economies of scale; Economies of scope; Spillovers; Econometrics