This paper examines outsourcing of health care services by focusing on determinants of contracting out decisions that Japanese municipal hospitals make. Concepts of both production cost and transaction cost are used to analyze the cost difference between in-house production and outsourcing. Production variables include input price, scale merit, management type, a constituent of demand, and market competitiveness. Transaction cost variables include indirect evaluation, hospital type, and degree of professional goods. The econometric specification is a standard linear regression model, estimated with Ordinary Least Square on a cross section of 975 Japanese municipal hospitals in 1997. There are five main results that were obtained from this analysis. First, there is no scale economy for hospitalsf contracting out decisions. Second, the percentage of the aged patients in the hospital decreases the rate of contracting out. Third, compared to the non-competitive market, competitive market practices more outsourcing. Fourth, although it is generally believed that the hospital internally delivers professional services such as doctorsf or professional nursesf treatment, external suppliers may also deliver these services. Fifth, an increase in the internal wages at the hospital does not lead an outsourcing decision for cost savings, which implies that Japanese municipal hospitals do not behave based on cost minimization theory.
Learning Objectives: N/A
Keywords: Contracting, Hospitals
Presenting author's disclosure statement:
Organization/institution whose products or services will be discussed: None
I do not have any significant financial interest/arrangement or affiliation with any organization/institution whose products or services are being discussed in this session.