Determinants Of Hospital Cost In Addis Ababa

Background: The share of public sector health resources in developing countries consumedrnby hospitals ranges from 50 to 80 percent. Multiple constraints and expanding demands havernrevealed the limits of governments’ reach and so reducing the role of the government,rnenhancing that of the private sector, or both, are policy questions based on the notion thatrnprivate ownership entails mechanisms which promote economic efficiency. In order tornpromote economic efficiency and to decide which outputs are best delivered in hospitals andrnto examine the trade-offs between various services, it is helpful to know how hospital costrnfunctions are influenced by output levels and other variables.rnObjective: The objective of this study was to identify and estimate the effects of determinantsrnof costs for a sample of government and private hospitals in Addis Ababa.rnMethods: A cross sectional study was conducted from Jan 2007 – March 2007 in AddisrnAbaba with in purposively selected hospitals. All facilities with complete information on thernstudy variables for the financial years 2003-2005 were considered. This gave a sample of 30rnhospitals generating 41 observations for assessing the determinants of costs. Interview withrnkey informants and document review were conducted. Translog – like cost function wasrnspecified and estimated using ordinary least squares (OLS).rnResults: According to the results of the study number of beds and number laboratory testsrndone had a positive and statistically significant effect on total cost. The volume of outpatientrnactivity, as measured by the number of first outpatient visits to the hospital had a statisticallyrnsignificant and negative impact on total cost. Calculated marginal costs had economies ofrnscale for the number of first outpatient but had diseconomies of scale for the number ofrnviirnlaboratory tests done. A negative and statistically significant coefficient associated with therninteraction term for inpatient and outpatient output indicated the existence of economies ofrnscope between the number of inpatients and the number of first outpatient visits.rnConclusion: The results of studies performed on hospital costs in Ethiopia are too limited tornprovide definitive guidance for policy. However, the estimated results imply that it is efficientrnto combine outpatient and inpatient care at the same facility and also it is more efficient tornhave one large hospital rather than two small ones. Additional empirical investigation isrnwarranted

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