Essays on Scale and Scope Economies in the English NHS

Willans, Rob and Janke, Katharina and Hollingsworth, Bruce and Tsionas, Mike (2023) Essays on Scale and Scope Economies in the English NHS. PhD thesis, Lancaster University.

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Abstract

This thesis considers the relationship between the size and structure of hos- pital services and their costs. It is often assumed that service amalgamation ought to yield lower costs through economies of scale. However, empirical evidence for this is limited and often dated. This thesis is structured as a series of essays evaluating scale and scope economies using parametric methods applied to cost and activity data from the English National Health Service, covering April 2013 - March 2019. The first three empirical chapters consider the relationship between size and average healthcare cost, whilst the last explores how the configuration of services affects the cost of hospital healthcare provision. Several parametric specifications and methods are used to evaluate scale economies using the dataset. Results show small but positive economies of scale for various specifications up until around 1,000-1,200 beds, which constituted most hospitals in the sample. Scale economies after this point varied according to the method used, suggesting that methodology, particularly the choice of the functional form, may partly explain variation in the literature. Differences are observed between the direct estimation of a long-run cost function and a long-run function obtained from the envelope of short-run functions. Scale economies were also lower in London and surrounding areas due to higher wage rates for non-medical staff. The analysis of scope economies found that general surgery demonstrated the highest degree of scope economies compared to all other outputs, with general medicine and obstetrics/gynaecology also exhibiting positive scope economies to a lesser degree. General surgery, general medicine and obstetrics/gynaecology may benefit from lower costs when collocated with other activities. This thesis updates prior estimates of hospital economies of scale using rich data. It provides insights into methodological sources of variation, leading to conclusions of interest for policy in planning hospital service provision and the effects of scale and scope.