Estimation of a physician practice cost function

OBJECTIVE

The goal of the present paper is to provide evidence on the behavior of physician practice cost functions.

DATA SOURCES

Our study is based on the data of 3686 physician practices in Germany for the years 2006 to 2008.

STUDY DESIGN

We apply a translog functional form and include a comprehensive set of variables that have not been previously used in this context. A system of four equations using three-stage least squares is estimated.

PRINCIPAL FINDINGS

We find that a higher degree of specialization leads to a decrease in costs, whereas quality certification increases costs. Costs of group practices are higher than of solo practices. The latter finding can be explained by the existence of indivisibilities of expensive technical equipment. Smaller practices do not reach the critical mass to invest in certain technologies, which leads to differences in the type of health care services provided by different practice types.

CONCLUSIONS

This is the first study to use physician practices as the unit of observation and to consider the endogenous character of physician input. Our results suggest that identifying factors that influence physician practice costs is important for providing evidence-based physician payment systems and to enable decision-makers to set incentives effectively.

Employment effects of hospital privatization in Germany

The main argument for the ongoing privatization process is that privatization will lead to an increase in efficiency, which has been confirmed by a large number of studies. An important argument against privatization is that privatization may lead to employment reductions. In the hospital sector, potential employment reductions might also lead to a decrease in the quality of care. This is the first study to investigate the employment effects of different types of hospital privatization (i.e., for-profit vs non-profit privatization) on different categories of staff. A combination of propensity score matching and difference-in-difference methods was used to identify the causal effect. We found large employment reductions after for-profit privatization, while there were no permanent reductions after non-profit privatization. Moreover, even for-profit privatization does not affect all types of staff. While there are large reductions in non-clinical staff, we could not detect any reduction in the number of physicians. The consequences of the detected employment effects of privatization have to be addressed in greater detail in future research.

Cost and technical efficiency of physician practices: a stochastic frontier approach using panel data

This is the first study to use stochastic frontier analysis to estimate both the technical and cost efficiency of physician practices. The analysis is based on panel data from 3,126 physician practices for the years 2006 through 2008. We specified the technical and cost frontiers as translog function, using the one-step approach of Battese and Coelli to detect factors that influence the efficiency of general practitioners and specialists. Variables that were not analyzed previously in this context (e.g., the degree of practice specialization) and a range of control variables such as a patients' case-mix were included in the estimation. Our results suggest that it is important to investigate both technical and cost efficiency, as results may depend on the type of efficiency analyzed. For example, the technical efficiency of group practices was significantly higher than that of solo practices, whereas the results for cost efficiency differed. This may be due to indivisibilities in expensive technical equipment, which can lead to different types of health care services being provided by different practice types (i.e., with group practices using more expensive inputs, leading to higher costs per case despite these practices being technically more efficient). Other practice characteristics such as participation in disease management programs show the same impact throughout both cost and technical efficiency: participation in disease management programs led to an increase in both, technical and cost efficiency, and may also have had positive effects on the quality of care. Future studies should take quality-related issues into account.

Cost of illness of cystic fibrosis in Germany: results from a large cystic fibrosis centre

BACKGROUND

Cystic fibrosis (CF) is the most common life-shortening genetic disorder among Whites worldwide. Because many of these patients experience chronic endobronchial colonization and have to take antibiotics and be treated as inpatients, societal costs of CF may be high. As the disease severity varies considerably among patients, costs may differ between patients.

OBJECTIVES

Our objectives were to calculate the average total costs of CF per patient and per year from a societal perspective; to include all direct medical and non-medical costs as well as indirect costs; to identify the main cost drivers; to investigate whether patients with CF can be grouped into homogenous cost groups; and to determine the influence of specific factors on different cost categories.

METHODS

Resource utilization data were collected for 87 patients admitted to an inpatient unit at a CF treatment centre during the first 6 months of 2004 and 125 patients who visited the centre's CF outpatient unit during the entire year. Fifty-four patients were admitted to the hospital and also visited the outpatient unit. Since all patients were exclusively treated at the centre, data could be aggregated. Costs that varied greatly between patients were measured per patient. The remaining costs were summarized as overhead costs and allocated on the basis of days of treatment or contacts per patient. Costs of the outpatient and inpatient units and costs for drugs patients received at the outpatient pharmacy were summarized as direct medical costs. Direct non-medical costs (i.e. travel expenses), as well as indirect costs (i. e. absence from work, productivity losses), were also included in the analysis. Main cost drivers were detected by the analysis of different cost categories. Patients were classified according to a diagnosis-related severity model, and median comparison tests (Wilcoxon-Mann-Whitney tests) were performed to investigate differences between the severity groups. Generalized least squares (GLS) regressions were used to identify variables influencing different cost categories. A sensitivity analysis using Monte Carlo simulation was performed.

RESULTS

The mean total cost per patient per year was &U20AC;41 468 (year 2004 values). Direct medical costs accounted for more than 90% of total costs and averaged &U20AC;38 869 (&U20AC;3876 to &U20AC;88 096), whereas direct non-medical costs were minimal. Indirect costs amounted to &U20AC;2491 (6% of total costs). Costs for drugs patients received at the outpatient pharmacy were the main cost driver. Costs rose with the degree of severity. Patients with moderate and severe disease had significantly higher direct costs than the relatively milder group. Regression analysis revealed that direct costs were mainly affected by the diagnosis-related severity level and the expiratory volume; the coefficient indicating the relationship between costs for mild CF patients and other patients rose with the degree of severity. A similar result was obtained for drug costs per patient as the dependent variable. Monte Carlo simulation suggests that there is a 90% probability that annual costs will be lower than &U20AC;37 300.

CONCLUSIONS

The share of indirect costs as a percentage of total costs for CF was rather low in this study. However, the relevance of indirect costs is likely to increase in the future as the life expectancy of CF patients increases, which is likely to lead to a rising work disability rate and thus increase indirect costs. Moreover we found that infection with Pseudomonas aeruginosa increases costs substantially. Thus, a decrease of the prevalence of P. aeruginosa would lead to substantial savings for society.