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The European Journal of Health Economics
Published in: The European Journal of Health Economics 4/2017

01-05-2017 | Original Paper

Estimation of a physician practice cost function

Authors: Lukas Kwietniewski, Mareike Heimeshoff, Jonas Schreyögg

Published in: The European Journal of Health Economics | Issue 4/2017

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Abstract

Objective

The goal of the present paper is to provide evidence on the behavior of physician practice cost functions.

Data sources

Our study is based on the data of 3686 physician practices in Germany for the years 2006 to 2008.

Study design

We apply a translog functional form and include a comprehensive set of variables that have not been previously used in this context. A system of four equations using three-stage least squares is estimated.

Principal findings

We find that a higher degree of specialization leads to a decrease in costs, whereas quality certification increases costs. Costs of group practices are higher than of solo practices. The latter finding can be explained by the existence of indivisibilities of expensive technical equipment. Smaller practices do not reach the critical mass to invest in certain technologies, which leads to differences in the type of health care services provided by different practice types.

Conclusions

This is the first study to use physician practices as the unit of observation and to consider the endogenous character of physician input. Our results suggest that identifying factors that influence physician practice costs is important for providing evidence-based physician payment systems and to enable decision-makers to set incentives effectively.
Footnotes
1
Linear homogeneity in input prices and symmetry were achieved by the following restrictions:\(\alpha_{kl} = \alpha_{lk} ; \,\sum\nolimits_{k = 1}^{2} {a_{k} } = 1; \sum\nolimits_{l = 1}^{2} {\alpha_{kl} } = 0; \sum\nolimits_{k = 1}^{2} {\gamma_{k} } = 0 \quad \text{for all } \; k, l\); Please note that we also estimated the model using input normalization instead of defining restrictions. However, the model with restrictions fitted our data much better.
 
2
For further details please see Escarce and Pauly [5].
 
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Metadata
Title
Estimation of a physician practice cost function
Authors
Lukas Kwietniewski
Mareike Heimeshoff
Jonas Schreyögg
Publication date
01-05-2017
Publisher
Springer Berlin Heidelberg
Published in
The European Journal of Health Economics / Issue 4/2017
Print ISSN: 1618-7598
Electronic ISSN: 1618-7601
DOI
https://doi.org/10.1007/s10198-016-0804-3

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