Specialty economies of scope in English hospitals: Cost Arguments for colocation

Abstract

Objective: Current policy responses to COVID-19 disruption and care backlogs suggest potential changes to the location and structure of hospital healthcare supply. However, few studies investigating the cost effects of hospital reorganisation consider changes in the mix of outputs or test for the existence of economies of scope in hospital healthcare. Attempts to create dedicated hubs to address healthcare demand backlogs could have unintended adverse cost effects where these are provided outside existing hospital arrangements. To evaluate this, we investigate the existence and size of economies of scope in English hospital healthcare.

Data: We use cost and activity data from the English NHS, linked to aggregated staff wage information and information taken from hospital financial statements. Cost and activity data was obtained from NHS England's Costing Publications. Wage data was extracted from the NHS's Electronic Staff Record via the NHS England Workforce Statistics Team, and published hospital financial accounts were aggregated and linked together at the organisation level.

Results: General Surgery exhibited positive economies of scope when provided alongside other healthcare, as to a lesser extent did General Medicine and Obstetric/Gynaecology healthcare. There was little evidence for economies of scope in Diagnostic and Pathology services, Orthopaedics, or Emergency Care. Few (2/28) output cross-products (cost complementarities) were statistically significant, but Baumol's wider definition of scope economies demonstrates that scope economies are present in some specialties.

Conclusion: Policymakers seeking to maximise the amount of healthcare provided and minimise the costs of doing so may wish to consider retaining General Surgery, General Medicine and Obstetric/Gynaecology healthcare supply alongside the provision of other clinical specialties. There is limited evidence that reconfiguring supply by centralizing other specialty groups into fewer providers would increase costs.

Keywords: Economies of scope; Hospital configurations; Hospital cost functions; Hospital costs; Hospital healthcare supply.