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Marginal Cost of Emergency Department Outpatient Visits: An Update Using California Data

Bamezai, Anil PhD; Melnick, Glenn PhD

doi: 10.1097/01.mlr.0000218854.55306.a8
Original Article

Objective: 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.

Data Sources: 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.

Study Design: 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).

Principal Findings: 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 per visit for large urban hospitals, $288 for other urban hospitals, $203 for rural hospitals, and $314 overall.

Conclusions: 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.

From RAND, Santa Monica, California.

The analyses presented here were developed as part of a larger study—funded by the California Health Care Foundation—devoted to improving the understanding of ED economics in California.

Reprints: Anil Bamezai, PhD, Resident Consultant, RAND, 1776 Main Street, P.O. Box 2138, Santa Monica, CA 90407-2138. E-mail:

© 2006 Lippincott Williams & Wilkins, Inc.