The determinants of hospital costs : an analysis of Ethiopia

Abstract

The problem of financing health care in poor countries has become increasingly acute. In the context of health financing, hospitals are viewed with skepticism as facilities are not cost-effective in the provision of primary health care services. Given this view, it is increasingly thought that such institutions should become financially independent from government subsidies and find other ways to finance both their recurrent and capital costs. The purpose of this paper is to analyze the determinants of hospital costs in a poor country by conducting a case study using data from Ethiopia. It analyzes the issues of economies of scale and scope in the delivery of hospital based health care services in a poor country. A translog-like cost function specification is used in the analysis. It shows that the number of inpatient days, deliveries and laboratory exams had a positive and statistically significant effect on total cost. A negative and statistically significant coefficient associated with the output interaction term indicated the existence of economies of scope between the number of inpatient days and the number of first outpatient visits. Finally, the number of total beds in a hospital appeared to have a positive and significant independent effect on total hospital cost.Economic Theory&Research,Business Environment,Business in Development,Environmental Economics&Policies,Health Systems Development&Reform