Determinants of Hospital Cost in Addis Ababa
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Date
2007-06
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Abstract
Background: The share of public sector health resources in developing countries consumed
by hospitals ranges from 50 to 80 percent. Multiple constraints and expanding demands have
revealed the limits of governments’ reach and so reducing the role of the government,
enhancing that of the private sector, or both, are policy questions based on the notion that
private ownership entails mechanisms which promote economic efficiency. In order to
promote economic efficiency and to decide which outputs are best delivered in hospitals and
to examine the trade-offs between various services, it is helpful to know how hospital cost
functions are influenced by output levels and other variables.
Objective: The objective of this study was to identify and estimate the effects of determinants
of costs for a sample of government and private hospitals in Addis Ababa.
Methods: A cross sectional study was conducted from Jan 2007 – March 2007 in Addis
Ababa with in purposively selected hospitals. All facilities with complete information on the
study variables for the financial years 2003-2005 were considered. This gave a sample of 30
hospitals generating 41 observations for assessing the determinants of costs. Interview with
key informants and document review were conducted. Translog – like cost function was
specified and estimated using ordinary least squares (OLS).
Results: According to the results of the study number of beds and number laboratory tests
done had a positive and statistically significant effect on total cost. The volume of outpatient
activity, as measured by the number of first outpatient visits to the hospital had a statistically
significant and negative impact on total cost. Calculated marginal costs had economies of
scale for the number of first outpatient but had diseconomies of scale for the number of
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laboratory tests done. A negative and statistically significant coefficient associated with the
interaction term for inpatient and outpatient output indicated the existence of economies of
scope between the number of inpatients and the number of first outpatient visits.
Conclusion: The results of studies performed on hospital costs in Ethiopia are too limited to
provide definitive guidance for policy. However, the estimated results imply that it is efficient
to combine outpatient and inpatient care at the same facility and also it is more efficient to
have one large hospital rather than two small ones. Additional empirical investigation is
warranted
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Keywords
The share of public sector health resources
Citation
Addis Abeba Universty