Skip to main content

Optimal prices and costs for hospitals with excess bed capacity

Buy Article:

$47.50 plus tax (Refund Policy)

This paper analyses theoretically and empirically issues in optimal pricing with excess hospital capacity, and then applies the analysis to the issue as to whether Medicare and Medicaid payments cover the marginal costs of treating patients of each type. The primary innovation of this paper lies in incorporating appropriate theoretical measures of hospital excess capacity to a multiproduct empirical hospital cost function, and in showing how proper measures of marginal cost can be applied to the examples of Medicare and Medicaid reimbursement in California. With a standard translog specification that ignores hospital excess capacity, the estimated marginal costs of Medicare and Medicaid patients are higher than the reimbursement. However, correctly incorporating excess capacity into our model leads to considerably lower estimates of short-run marginal costs, suggesting that Medicare hospital reimbursement is more than adequate in the short run. We also develop a third marginal cost concept, that of what long-run marginal costs would be if excess capacity were eliminated. This is the most theoretically appropriate measure of optimum long-run reimbursement; Medicare reimbursement also covers this measure of costs. The extent to which Medicare reimbursement covers costs thus depends crucially on whether capacity is assumed fixed or variable. Similar examples are presented for Medicaid.
No Reference information available - sign in for access.
No Citation information available - sign in for access.
No Supplementary Data.
No Article Media
No Metrics

Document Type: Research Article

Publication date: 2000-07-15

More about this publication?
  • Access Key
  • Free content
  • Partial Free content
  • New content
  • Open access content
  • Partial Open access content
  • Subscribed content
  • Partial Subscribed content
  • Free trial content
Cookie Policy
Cookie Policy
Ingenta Connect website makes use of cookies so as to keep track of data that you have filled in. I am Happy with this Find out more