The impact of teaching status on average costs in Spanish hospitals

In this paper, the observed systematic differences in costs for teaching ho spitals (TH) in Spain are examined. Concern has been voiced regarding the e xistence of a bias in the financing of TH once prospective budgets are intr oduced for hospital finance. Claims for adjustment to take into account the 'legitimate' extra costs of teaching on hospital expenditure may be well g rounded. Focus is on the estimation of the impact of teaching status on average cost , using a version of a multi-product hospital cost function, taking into ac count some relevant factors from which to derive the observed differences. It is assumed that the relationship between the explanatory and the depende nt variables follows a flexible form for each of the explanatory variables. Also, the underlying covariance structure of the data is modelled. Two qua litatively different sources of variation are assumed: random effects and s erial correlation. Random variation refers to both general level variation (through the random intercept) and the variation specifically related to te aching status. It is postulated that the impact of the random effects is do minant over the impact of the serial correlation effects. The model is esti mated by restricted maximum likelihood. The results show that costs are 9% higher (15% in the case of median costs) in teaching than in non-teaching hospitals. That is, teaching status legit imately explains no more than half of the observed difference in actual cos ts. The impact on costs of the teaching factor depends on the number of res idents, with an increase of 51.11% per resident for hospitals with fewer th an 204 residents (third quartile of the number of residents) and 41.84% for hospitals with more than 204 residents. In addition, the estimated dispers ion is higher among teaching hospitals. As a result, due to the considerabl e observed heterogeneity, results should be interpreted with caution. From a policy making point of view, it is concluded that since a higher rel ative burden for medical training falls on public hospitals, an explicit ad justment for the extra costs that the teaching factor imposes on hospital f inance is needed, before hospital competition for inpatient services takes place. (C) 1999 John Wiley & Sons, Ltd.