Marginal Cost of Emergency Department Outpatient Visits

Abstract

We sought to clarify the importance of time frame in the measurement of marginal cost and to provide marginal cost estimates for outpatient emergency department (ED) visits that better reflect current economic conditions. Analyses are based upon data that California hospitals report to the Office of Statewide Health Planning and Development (OSHPD). The time period covered was 1990 through 1998. Hospitals without EDs, or hospitals designated as trauma centers, were excluded from the analysis. Nine years of panel data were used to estimate hospital cost functions, which were then used to test for economies of scale and to derive estimates of both short- and long-run marginal costs (excluding the physician expense component). We found only weak evidence in favor of scale economies and, in that context, we argue that long-run marginal costs should be the preferred metric for judging the cost of treating outpatient ED visitors. We estimate these long-run costs (in 1998 dollars) to be roughly 348 dollars per visit for large urban hospitals, 288 dollars for other urban hospitals, 203 dollars for rural hospitals, and 314 dollars overall. Our results suggest that the marginal cost of an outpatient ED visit is larger than is commonly believed. A key implication of this finding is that hospital administrators need to think more carefully about their nonurgent care policies, especially as they pertain to ED operations.