Concentrating Emergency Rooms: Penny-Wise and Pound-Foolish? An Empirical Research on Scale Economies and Chain Economies in Emergency Rooms in Dutch Hospitals

In this paper, we address the issue of whether it is economically advantageous to concentrate emergency rooms (ERs) in large hospitals. Besides identifying economies of scale of ERs, we also focus on chain economies. The latter term refers to the effects on a hospital's costs of ER patients who also need follow-up inpatient or outpatient hospital care. We show that, for each service examined, product-specific economies of scale prevail indicating that it would be beneficial for hospitals to increase ER services. However, this seems to be inconsistent with the overall diseconomies of scale for the hospital as a whole. This intuitively contradictory result is indicated as the economies of scale paradox. This scale paradox also explains why, in general, hospitals are too large. There are internal (departmental) pressures to expand certain services, such as ER, in order to benefit from the product-specific economies of scale. However, the financial burden of this expansion is borne by the hospital as a whole. The policy implications of the results are that concentrating ERs seems to be advantageous from a product-specific perspective, but is far less advantageous from the hospital perspective.

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