Returns to scale in the production of hospital services

Abstract

The primary purpose of this article is to investigate whether or not economies of scale exist in the production of hospital services. In previous studies the results have implied the existence of economies of scale, but the question has not been satisfactorily resolved. The factor most responsible for clouding the issue is the overwhelming prevalence of product differences in the outputs of hospitals. In this study a method which avoids the problem of product differentiation is developed.

The analysis strongly supports the conclusion that hospital services are produced subject to economies of scale.