Volume and Cost:
The major economic benefit of the consolidation of surgeries at high volume surgical centers and hospitals is economies of scale. Many surgical procedures require a wide array of medical instruments, often high-tech, expensive instruments that are unique to a particular surgery or type of surgery. For example, consider a surgery room equipped for open-heart surgery. Assume that two surgeries a day can be done in one surgery room, for a total of ten surgeries in a week. If the ten surgeries are divided among five different hospitals, each doing two a week instead of two a day, five different fully equipped operating rooms are needed, vastly increasing costs. Thus the costs of many surgeries can be greatly reduced through the economies of scale for surgical equipment.There are also economies of scale associated with surgical physicians and staff. Consider the same heart surgery example. One surgeon and surgical staff can operate twice a day, for a total of ten surgeries a week. If these surgeries are divided amongst five hospitals each doing two surgeries a week, a separate surgeon and surgical staff are needed at each hospital. The surgeon and surgical staff at each hospital, only performing two surgeries a week, are doing something less productive than surgery for the remainder of the week, even though comparative advantage dictates that they should be performing surgeries. Thus economies of scale also reduce the costs of surgery for surgeons and surgical staff.
Economies of scale also apply to the surgical process itself. A high volume hospital is better equipped to set up efficient preoperative and postoperative procedures than is a low volume hospital. More efficient care on either end of surgery results in decreased costs and better care with fewer complications and shorter length of stay, also reducing costs.
On the other hand, volume-based referral also has the potential to increase the costs of surgery in a few ways. Hospitals that become referral centers may need to increase capacity, adding temporary one-time additional fixed costs. There are frictional costs associated with the movement of surgeons and surgical staff from low to high volume hospitals. More referrals leads to increased amounts of paperwork and communication between referral and referee centers. Redundant clinical tests and evaluations performed at both the referring and referral centers will increase costs. In addition, some high volume hospitals are also teaching hospitals, and it is possible that teaching hospitals may have higher costs, but the data in this regard are as of yet inconclusive1 (see Birkmeyer, 2001).
It is difficult to say whether the cost reductions from economies of scale outweigh the increases in costs due to the factors just described. There is very little literature on the cost of surgery at high and low volume hospitals. However, there is data on the price of surgery, which serves as a good proxy for the cost of surgery. The price of surgery is examined in the next section. Be Sure to Continue to Page 3 of "The Quality and Economic Implications of Volume-Based Surgery Referral".
