Economies of scale and scope in Vietnamese hospitals

Abstract

Hospitals consume a large share of health resources in developing countries, but little is known about the efficiency of their scale and scope. The Ministry of Health of Vietnam and World Bank collected data in 1996 from the largest sample ever surveyed in a developing country. The sample included 654 out of 815 public hospitals, six categories of hospitals and a broad range of sizes. These data were used to estimate total variable cost as a function of multiple products, such as admissions and outpatient visits. We report results for two specifications: (1) estimates with a single variable for beds and (2) estimates with interaction terms for beds and the category of hospital. The coefficient estimates were used to calculate marginal costs, short-run returns to the variable factor, economies of scale, and economies of scope for each category of hospital. There were important differences across categories of hospitals. The measure of economies of scale was 1.09 for central general and 1.05 for central specialty hospitals with a mean of 516 and 226 beds, respectively, indicating roughly constant returns to scale. The measure was well below one for both provincial general and specialty hospitals with a mean of 357 and 192 beds, respectively, indicating large diseconomies of scale. The measure was 1.16 for district hospitals and 0.89 other ministry hospitals indicating modest economies and diseconomies of scale, respectively. There were large economies of scope for central and provincial general hospitals. We conclude that in a system of public hospitals in a developing country that followed an administrative structure, the variable cost function differed significantly across categories of hospitals. Economies of scale and scope depended on the category of the hospital in addition to the number of beds and volume of output.