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A methodology for derivation of marginal costs of hospital cases and application to estimation of cost savings from community health centres Barer, Morris Lionel

Abstract

Considerable attention has been devoted in the past to documenting the impact of prepaid group practices and community health centres on inpatient hospital utilization. The thesis develops and applies a methodology designed to allow estimation of the fiscal implications of such evidence. An equation relating average hospital inpatient costs to a number of explanatory variables is specified. The maximum likelihood estimation technique is employed in a time-series/cross-section analysis to determine parameter estimates for that equation over the period 1966-73. The variables are constructed from data deriving from eighty-seven British Columbia public general hospitals. Empirical results indicate the importance of case mix, average length of inpatient stay, rate of case flow and education-related hospital activities in explaining the variance across the eighty-seven hospitals in average cost per separation. The parameter estimates derived in the unit cost analysis are utilized in a comparative static determination of the implications for unit costs of changes in a hospital's case mix. The impact of case-specific case mix changes on unit (per separation) costs is determined, from which analysis case-specific marginal costs are derived. Finally, the marginal case costs are combined with utilization statistics from matched population studies involving community health centres or prepaid group practices. This allows determination of the expenditure implications of the utilization differentials reported in that literature. A subsequent extrapolative and conjectural analysis considers the cost implications of more widespread use of community health centres as a mode of medical care delivery in British Columbia. The conclusions suggest that the fiscal impact on the overall medical care budget in B.C. would be minimal in the absence of corresponding reductions in numbers of hospital beds. A number of other applications of the case cost derivation methodology are suggested.

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