Cost-Output Relation, Technological Progress, and Clinical Activity Mix of US Hospital Pharmacies

Abstract

The fairly recent discovery and growing use of costly, revolutionary biotechnology drugs (e.g., GM-CSFs) in hospitals represent a major technical innovation in clinical pharmacy intervention. This paper models the translog production cost impacts of ten distinct clinical pharmacy tasks including pharmacokinetics, consultations with MDs, monitoring drug interactions, ... , and presents results on decomposed technical change, economies of scope, scale economies, total factor productivity, and the alternatively defined pairwise factor substitution possibilities. The model was fitted to 1981-1990 time-series/cross-sectional data of US hospital pharmacies (source: Eli-Lilly Co.®). Zellner's ISURE (Iterative Seemingly Unrelated Regression Equations) system estimates reveal a non-homothetic underlying technology with biased and pure technical change effects dominating scale-augmentation. Certain clinical tasks increase costs but are cost-saving if jointly produced with selective others. One of the largest and statistically significant economies of scope estimates is between 'monitoring drug interactions' and 'consultations with MDs'. Cost implications of findings are given in light of the recent trends in hospital pharmacy clinical activities, related professional health manpower, and piecemeal health policy reforms.

Publication Title

Journal of Productivity Analysis

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