Production of Hospital Services

Topics:
(1) Production of Hospital Services
Lesson Objectives:
(1) To understand the graphical and mathematical representation of a production
function, including the concepts of isoquants, isocost curves, and budget
constraints.
(2) To compare and contrast models describing the objectives and behavior of forprofit and non-profit health care providers.
(3) To analyze whether not-for-profit hospitals and for-profit hospitals offer different
services depending on the presence of others in the market.
(4) To summarize empirical findings regarding the similarities and differences in
behavior among for-profit and non-profit providers.
(5) To understand the concept of a cost function, as well as economies of scale and
scope.
(6) To define what is meant by cost-shifting by hospitals, and to identify the key
issues surrounding the debate about whether or not hospitals engage in costshifting.
Readings:
9
FGS 6, 13, 14
*Horwitz, J. “Making Profits And Providing Care: Comparing Nonprofit, For-Profit, And
Government.” Health Affairs, May/June 2005, 24(3): 790-801. Accessed at:
http://content.healthaffairs.org/content/24/3/790.full.pdf
Horwitz, J. and A. Nichols. “Hospital ownership and medical services: Market mix,
spillover effects, and nonprofit objectives.” Journal of Health Economics. 2009, 28: 924-
937.
Grannemann, Brown, and Pauly. “Estimating Hospital Costs – A Multiple Output
Analysis.” Journal of Health Economics, 5: 107-127.
Supplemental Resources:
Reinhardt, Uwe. “The Many Different Prices Paid to Providers and the Flawed Theory of
Cost Shifting: Is it Time for a More Rational All-Payer System?” Health Affairs, 2011,
30(11): 2125-2133.
Frakt, A. “How Much Do Hospitals Cost Shift?: A Review of the Evidence” The Milbank
Quarterly, 89(1): 90130.
Roberts et al. “Distribution of Variable vs Fixed Costs of Hospital Care.” JAMA, 1999,
281(7): 644-649.
Malani et al. “Theories of Firm Behavior in the Nonprofit Sector. A Synthesis and Empirical
Evaluation.” NBER Chapter. Available at: http://www.nber.org/chapters/c9970.pdf

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