Short Communication
Applying cost minimization techniques to hospitals: A comment

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Abstract

In a challenging paper, [Suthummanon S., Omachonu V.K., 2007. Cost minimization models: Applications in a teaching hospital. European Journal of Operational Research 186, 1175–1183] (hereafter SO), present an interesting cost minimization model to be applied to improve hospital efficiency. Though the technical aspects of the statistical analysis SO present cannot be criticized, it is argued that the application to hospital costs the authors present is fraught with conceptual and practical problems. These need to be resolved before a length of stay approach to minimizing hospital costs can have any practical relevance.

Introduction

In a challenging paper, Suthummanon and Omachonu (2007, hereafter SO), present an interesting cost minimization model to be applied to improve hospital efficiency. Though the technical aspects of the statistical analysis SO present cannot be criticized, it will be argued that three fundamental observations, together with a more technical point, invalidate the conclusions they reach with respect to the example case they present. Clearly, this does not imply the method itself is inherently useless, but only that its usefulness should be assessed taking into consideration the model’s characteristics and comparing them with the real world situation in which the model’s application is considered.

Section snippets

The appropriateness of cost minimization

SO must be credited for pointing at the main condition which must prevail for cost minimization to be an appropriate technique when looking at health care costs: ‘it is important to note that cost minimization analysis is an appropriate technique to employ when there is reason to believe that the outcomes of the different patients’ lengths of stay under consideration are the same or similar … If evidence [of this] is not available, any conclusion reached would be on misleading results.’ (

A technical point

As already mentioned in the previous section, SO asses the cost reduction by comparing the actual costs with the admission costs that would obtain when LOS would be the average daily cost minimizing length of stay LOS. By doing this, they do not distinguish between costs expected for a given length of stay according to (1) and (in)efficiencies making the actual cost depart from this level. Defining CAA to be the actual admission cost, CA the admission cost for any LOS according to (1), and CA′

Conclusion

Suthummanon and Omachonu (2007) present a challenging application of a cost minimization model to the case of hospital costs.

Without arguing that their method as such is flawed, the present paper intends to show that the application to hospital costs the authors present is fraught with conceptual and practical problems. These need to be resolved before a length of stay approach to minimizing hospital costs can have any practical relevance.

References (1)

  • S. Suthummanon et al.

    Cost minimization models: Applications in a teaching hospital

    European Journal of Operational Research

    (2007)

Cited by (2)

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