Paper #265

Title:

Finance versus costs for teaching hospitals in Spain

Authors:

Guillem López and Marc Sáez

Date:

February 1998

Abstract:

In this paper we analyse the observed systematic differences in costs for teaching hospitals (THhenceforth) in Spain. Concern has been voiced regarding the existence of a bias in the financing of TH’s has been raised once prospective budgets are in the arena for hospital finance, and claims for adjusting to take into account the ‘legitimate’ extra costs of teaching on hospital expenditure are well grounded. We focus on the estimation of the impact of teaching status on average cost. We used a version of a multiproduct hospital cost function taking into account some relevant factors from which to derive the observed differences. We assume that the relationship between the explanatory and the dependent variables follows a flexible form for each of the explanatory variables. We also model the underlying covariance structure of the data. We assumed two qualitatively different sources of variation: random effects and serial correlation. Random variation refers to both general level variation (through the random intercept) and the variation specifically related to teaching status. We postulate that the impact of the random effects is predominant over the impact of the serial correlation effects. The model is estimated by restricted maximum likelihood. Our results show that costs are 9% higher (15% in the case of median costs) in teaching than in non-teaching hospitals. That is, teaching status legitimately explains no more than half of the observed difference in actual costs. The impact on costs of the teaching factor depends on the number of residents, with an increase of 51.11% per resident for hospitals with fewer than 204 residents (third quartile of the number of residents) and 41.84% for hospitals with more than 204 residents. In addition, the estimated dispersion is higher among teaching hospitals. As a result, due to the considerable observed heterogeneity, results should be interpreted with caution. From a policy making point of view, we conclude that since a higher relative burden for medical training is under public hospital command, an explicit adjustment to the extra costs that the teaching factor imposes on hospital finance is needed, before hospital competition for inpatient services takes place.

Keywords:

Cost functions, semi-parametric estimation, regression analysis, teaching hospitals, prospective payments

JEL codes:

I19, I10, C33, H19, H55

Area of Research:

Labour, Public, Development and Health Economics

CRES Series number:

5

Published in:

Health Economics, 8, (1999), pp. 641-651

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