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Healthcare costs


Moving elective procedures out of general hospitals can increase quality and reduce cost of emergency services, says 10-year study of all English NHS hospitals co-authored by Professor Stefan Scholtes of Cambridge Judge Business School.

Cropped shot of a group of surgeons performing a medical procedure in an operating room.

Separating elective services out of general hospitals benefits not only these services but can also increase quality and reduce costs of emergency services, says research co-authored at Cambridge Judge Business School based on all NHS hospitals in England over a 10-year period.

The findings, which challenge conventional wisdom about hospital economies of scale regarding emergency services, finds that “managers may actually harm their hospitals financially if they focus on growing high-margin elective activity” because spillover effects result in an increase in emergency care costs as elective care volume grows, says a new blogpost by the study’s authors, summarising the findings.

Results of the study – entitled “Economies of scale and scope in hospitals: an empirical study of volume spillovers” in the journal Management Science – strengthen the argument of those who call for moving routine procedures like cataract surgery and hip replacements out of general hospitals into “focused factories” by discounting the argument that emergency services could become more expensive.

Stefan Scholtes.
Professor Stefan Scholtes

“The findings are particularly important given that the NHS Long Term Plan proposes that diagnostic services and outpatient care should be moved out of hospitals into the community  to improve quality and cost-efficiency, says study co-author Stefan Scholtes, Dennis Gillings Professor of Health Management at Cambridge Judge Business School. “Getting this right is particularly important in the post-COVID-19 era, when waiting lists are long and productivity needs to be improved, while funds are scarce as the economy recovers.”

Previous studies on this hospital cost-benefit issue had been hindered by a lack of comprehensive data, but the new study overcomes such limitations by analysing a unique data set of annual average cost data of nearly 145 million hospital admissions for over 2,000 conditions over the period 2006 to 2016. Looking at all 157 English NHS acute hospital trusts, facilities that range from small district hospitals to large teaching hospitals, the study makes three key findings:

  1. Reduced elective volume of a hospital is associated with a reduction in emergency care costs, suggesting that shifting elective procedures elsewhere may make a hospital’s emergency services more cost-efficient.
  2. Moving elective specialties out of hospitals one specialty at a time does not financially destabilise remaining specialties in the hospital.
  3. Reduced emergency activity in one specialty is associated with higher emergency care costs in other specialties, suggesting that emergency services should not be disaggregated.

“The study shows that, contrary to received wisdom, the focused emergency growth strategy leads to the highest cost savings and that managers may actually harm their hospitals financially if they focus on growing high-margin elective activity,” says a blogpost just published in Management Science Review by the study’s three co-authors – Dr Michael Freeman of Instead, Professor Nicos Savva of London Business School, and Professor Stefan Scholtes of Cambridge Judge Business School. “The latter is short-sighted because it does not account for the volume-cost spillover effects – costs of emergency care increase as elective care volume grows.”

“It is precisely such unintended consequences that make hospitals “managerially intractable”, the authors say, citing a quote by the late Harvard Business School academic Clayton Christensen and colleagues from their influential 2009 book The Innovator’s Prescription.

The study focuses on the cost implications of hospital reorganisation; the findings are closely aligned with those of a 2019 study by Professor Stefan Scholtes and two other colleagues, based on German data, that found similar effects on mortality.

“There appears to be no cost‑quality trade-off in the proposals to separate elective services (particularly for non-complex patients) out of general hospitals and offer them in ‘focused factories’, either as a stand-alone or at an arm’s-length separation from emergency services within hospital trusts,” says the blogpost. “The key insight of these papers is that such reorganisations will not only benefit the quality and cost of the separated elective services – an argument that has been made before – but that it will also increase quality and reduce the cost of the remaining services in the hospitals.”