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KMID : 0387320080180010021
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Korean Journal of Health Policy and Administration
2008 Volume.18 No. 1 p.21 ~ p.42
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Economies of Scale and Scope in Hospitals
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Ham U-Sang
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Abstract
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T his study investigates economies of scale, cost complementarity and economies of scope for healthcare organizations using econometric approaches. The economies of scale appear to exist in each service provided by a hospital such as inpatient treatment services, outpatient treatment services, and other patient treatment services, respectively. When we test all services in aggregate level, it also indicates that the healthcare industry on average exhibits the economies of scale of 6 percent, which implies that scaling up hospital sizes will bring substantial cost savings to them. Evidence shows that cost complementarity exists between outpatient services and other services for patients and, i.e., these other services for patients experience the reduction in marginal costs as the outputs of the outpatient services increase. For the economies of scope, they are present in most service areas; aggregate level services, outpatient services, and other services for patients, respectively. Inpatient treatment services, however, do not show any evidence of the economies of scope. Results show that the economies of scope are achieved by the general hospital type that provides all service areas such as inpatient treatments, outpatient treatments, and other services for patients. The existence of the economies of scope provides the rationale for extending the existing line of business in a hospital into more diverse areas of services where its benefit comes in the form of cost savings. In sum, it overall provides evidence that the M&As in this industry are encouraged to achieve cost reductions from the economies of scale and scope by changing the size and the output mix.
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KEYWORD
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Economies of scale, Cost complementarity, Economies of scope
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