On the estimation of hospital cost: the approach

Bitran and Dunlop (1993) used a translog like cost function specification similar to the one employed by
Grannemann et al. (1986). This specification enables an explicit determination of the marginal expenditure of
care, given the structure of output and other factors, such as input prices, that might affect the structure of
expenditures. Thus the specification provides a more theoretically appropriate framework of analysis than that
of the overworked ‘unit cost’ approach. The analytical approach followed in this paper recognize that hospitals
in all countries are multi-product institutions as they provide a number of different types of both inpatient and
outpatient curative services.

Most of the studies mentioned above focus on estimating hospital cost functions. Accounting based studies are
rather rare. This is basically because of the difficulty in isolating hospital specific components and come with
meaningful values. However, whatever may be the methodology of hospital cost measurement, collection of the
following details over a sufficient number of years will be handy.

The required data format ideally suited for carrying out an empirical examination of hospital cost

I Information on Cost

A) Fixed Costs

A detailed break up, if available, as given below, would be of use for a detailed analysis.

1. Land

2. Buildings

3. Tools

4. Instruments

5. Glasswares

6. Construction Materials

7. Others (Specify)

B) Variable Costs: Expenditure on broad categories such as

1. Compensation to employees (wages and salaries, allowances etc.)

2. Medicines (including chemicals, medical gases etc.)

3. Hospital Accessories

4. Stationaries

5. Others

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