Effects of ownership, subsidization and teaching activities on hospital costs in Switzerland

This paper explores the cost structure of Swiss hospitals, focusing on differences due to teaching activities and those related to ownership and subsidization types. A stochastic total cost frontier with a Cobb-Douglas functional form has been estimated for a panel of 148 general hospitals over the six-year period from 1998 to 2003. Inpatient cases adjusted by DRG cost weights and ambulatory revenues are considered as two separate outputs. The adopted econometric specification allows for unobserved heterogeneity across hospitals. The results suggest that teaching activities are an important cost-driving factor and hospitals that have a broader range of specialization are relatively more costly. The excess costs of university hospitals can be explained by more extensive teaching activities as well as the relative complexity of the offered medical treatments from a teaching point of view. However, even after controlling for such differences university hospitals have shown a relatively low cost-efficiency especially in the first two or three years of the sample period. The analysis does not provide any evidence of significant efficiency differences across ownership/subsidy categories.