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Cost effects of hospital mergers in Portugal

Abstract

The Portuguese hospital sector has been restructured by wide-ranging hospital mergers, following a conviction among policy makers that bigger hospitals lead to lower average costs. Since the effects of mergers have not been systematically evaluated, the purpose of this article is to contribute to this area of knowledge by assessing potential economies of scale to explore and compare these results with realized cost savings after mergers. Considering the period 2003–2009, we estimate the translog cost function to examine economies of scale in the years preceding restructuring. Additionally, we use the difference-in-differences approach to evaluate hospital centres (HC) that occurred between 2004 and 2007, comparing the years after and before mergers. Our findings suggest that economies of scale are present in the pre-merger configuration with an optimum hospital size of around 230 beds. However, the mergers between two or more hospitals led to statistically significant post-merger cost increases, of about 8 %. This result indicates that some HC become too large to explore economies of scale and suggests the difficulty of achieving efficiencies through combining operations and service specialization.

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Fig. 1

Notes

  1. Regularity conditions: non-negative; linearly homogeneous in factor prices (w); non-decreasing in w; concave in w, continuous in w, differentiable in w; and non-decreasing in the output level (Carreira 7).

  2. Central Administration of the Health System, I. P. (ACSS).

  3. Directorate-General for Health (DGS).

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Acknowledgments

The authors would like to thank the two anonymous reviewers and Professor Pedro Pita Barros for their helpful comments on the paper.

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Correspondence to Helda Azevedo.

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Azevedo, H., Mateus, C. Cost effects of hospital mergers in Portugal. Eur J Health Econ 15, 999–1010 (2014). https://doi.org/10.1007/s10198-013-0552-6

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  • DOI: https://doi.org/10.1007/s10198-013-0552-6

Keywords

  • Hospital mergers
  • Economies of scale
  • Translog cost function
  • Difference-in-differences approach

JEL Classification

  • C21
  • D24
  • I18