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Estimation of cost functions for physician firms is problematic because many physicians are self-employed, and the marginal opportunity cost of physician labor is not observed. In this paper, we show how to recover marginal costs and conventional measures of economies of scale from cost functions that condition on the amount of physician labor input. In addition, we introduce the new concepts of marginal nonphysician input costs and 'behavioral' economies of scale, which reflect the structure of costs when physician labor input moves along a utility-maximizing expansion path. Our results could be useful in the design of resource-based physician fee schedules. [ABSTRACT FROM AUTHOR]

This paper uses semiparametric methods to estimate the magnitude of economies of scale in 14 non-revenue producing cost centers in hospitals. There are substantial economies of scale in small hospitals, but economies are exhausted in hospitals with over 10,000 discharges annually. In recent hospital mergers challenged by federal antitrust agencies, one or both hospitals had over 10,000 discharges, suggesting that efficiency gains in non-revenue producing cost centers will be small, and could easily be offset by nominal price increases. [ABSTRACT FROM AUTHOR]

Recent studies using the stochastic frontier approach have suggested high levels of inefficiency in nursing home and hospital facilities. This paper makes two observations. First, one could falsely estimate high levels of inefficiency if a statistical assumption--zero skewness of the random component of the cost residual--is violated. Second, an inefficient industry may be difficult to distinguish either statistically or visually from an industry free of inefficiency. If available, panel data yields more robust estimates of cost differences among nursing homes or hospitals. [ABSTRACT FROM AUTHOR]