Estimating the cost function and unit costs of public hospitals in Thailand

Health expenditure in Thailand has escalated over the past decades. This trend has been prominent in the public spending, where its proportion over total health expenditure (THE) has been increasing particularly after the implementation of the universal coverage (UC) scheme. Hospitals consume the highest proportion of health resources, which exceeds 60% of total health spending, and so have been playing a significant role in the escalation of THE. Due to difficulties in obtaining data from private hospitals, this study aims to analyse the cost structure and characteristics of public hospitals in Thailand. The first component estimated the hospital cost function using 704 community and provincial hospitals in 2006. The second component developed an econometric model to estimate the unit costs of hospital services by obtaining 23 sample data from past studies between 1998−2003. Translog function was assumed for the estimation of the cost function. The results favoured the short-run cost function over the long-run. The major determinants of hospital costs included inpatient services and input prices, except for medical doctors. The proportion of UC outpatients was identified to shift-up the cost level of hospitals. UC seems to be one of the cost escalation factors of hospitals. From the estimated cost function parameters, diseconomies of scale for both community and provincial hospitals were identified which suggest the down-sizing of hospitals. Partial economies of scope between outpatient and inpatient services was identified suggesting that a stand-alone outpatient clinic would result in an increased unit cost. The opposing effects of scale and scope economies meant that the optimum size and service mix of hospitals should be identified by striking the balance between these two factors. The econometric model developed to estimate the unit cost ratio between outpatient and inpatient services enables the estimation of unit costs from full costs. Unit cost simulations revealed an average ratio between outpatient and inpatient unit costs of 1:13 for community hospitals, and 1:28 for provincial hospitals. Whilst the former approximates the current practice of 1:14 used by the Ministry of Public Health, the latter deviates significantly from the current practice of 1:18. Further studies are required to confirm the accuracy of the ratio.