RESOLVING THE IMPASSE ON HOSPITAL SCALE ECONOMIES - A NEW APPROACH

The existence of scale economies in hospitals is important for both pu blic and managerial policy, yet production and cost function studies h ave found conflicting evidence. More recently, more sophisticated stud ies have typically found scale diseconomies, which is inconsistent wit h the views of industry participants and observers. In the early 1980s , California deregulated both private and public health insurance (Med iCal), which provides a natural laboratory for examining hospital effi ciency. Using Stigler's original and multivariate survivor analysis, w e resolve the conflict in favour of scale economies, and reconcile the controversy. The survivorship methodology is simple to apply, and a u seful tool in conjunction with statistical cost and production studies .