Abstract
A central policy issue in health care systems is the optimal structure of the delivery system. In the hospital sector this relates to two (interdependent) issues; scale and scope. If there are economies or diseconomies of scope, the production of hospital services in a region could become more efficient by exploiting any cost savings that may stem from an optimal division of service production between units. While the theory of economics of scope is well developed, applications have chiefly been concerned with testing for natural monopoly, and few studies of hospital production have been concerned with scope. This paper estimates a multiple output cost function from 133 observations of Norwegian hospitals 2013-2019 using the non-parametric Data Envelopment Analysis (DEA) method. The cost function is specified with total operating costs as the only input, but with seven different outputs to focus on the properties of the output transformation frontier. To overcome the methodological assumption of convexity inherent in DEA, the sample is split into relative specialised and differentiated hospitals, before comparing costs. This partitioning is achieved through grouping as specialised the first and fifth quintiles of the hospitals ranked by the share of the relevant output, since in fact no hospital is fully specialised by producing only one output, or nothing of an output. Exploring scope economies of the best practice cost frontier along three different dimensions, preliminary analysis find economies of scope for surgical vs medical services, and to a lesser extent for inpatient vs outpatient production and elective vs emergency care patients. However, these results are not clearly significant, with wide bootstrapped confidence intervals due to the low number of observations.