Estimating production function: a tool for Hospital Resource Management

Abstract

Background: The necessity of correct management of costs in hospitals as an economic agent and their significance as the largest and most cost-consuming operational units of health system emphasize the importance of applying managerial tools and methods. Objectives: This study was conducted to estimate the production function of all hospitals affiliated with the Social Security Organization (SSO). Patients and Methods: This was a cross-sectional study conducted on 64 hospitals affiliated with SSO during 2007-2009. The Cobb-Douglas model was applied, estimating the above hospitals production functions. The numbers of physicians, nurses, other staff and active beds were considered as inputs and the numbers of outpatients and inpatients were mentioned as the study outputs. Log form of production function, EViews 5 and SPSS, were used. Results: The production function of the studied hospitals showed that all the production factor indexes except for other staff had significant positive relationships with the number of inpatients as our output; meanwhile, the most and the least marginal production rates were related to active beds and other staff, respectively. Other findings showed a decreasing return to scale (DRS) in these hospitals. Moreover, during the whole study period, the highest average of surplus belonged to other staff. Conclusions: According to the present results, it seems that these hospitals have to revise their human resource management policies to be able to apply this valuable input in an optimum manner. Furthermore, using appropriate economical tools may help them to recognize their surplus factors and in this way improve their productivity and efficiency.