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The cost of readmissions in hospitals: the case of the Spanish public hospitals

Ana Rodríguez-Álvarez,Eder Alonso-Iglesias

Published 2024 in Health Economics Review

ABSTRACT

In this paper, we propose a novel model that allows us to understand the effect of hospital readmissions on technology and costs. To do this, we consider that hospitals may experience heterogeneous discharges: on the one hand, discharges corresponding to patients who have completed their healing process in hospital and, on the other hand, discharges resulting from patients who have been discharged too early and are therefore required to be readmitted to hospital. In the first case, discharges involve more resources; in the second case, the patient returns implying an additional use of resources. In tandem, two new issues arise which need to be addressed: a) Does a trade-off exist between the decision to discharge at the finalisation of fully completed treatment or the decision to discharge taken at an earlier stage; b) Readmissions may prove endogenous and if so, their econometric treatment must be considered in order to obtain unbiased results. Our study contributes to the literature by proposing a novel model which estimates the marginal cost of readmissions, thus allowing us to understand the effect of readmission on technology and hospital costs. To resolve the foregoing concerns, this paper proposes a theoretical and empirical model based on the dual theory, which combines cost and input-oriented distance functions to obtain the marginal cost of readmissions. Our empirical application uses a panel of Spanish public hospitals observed over the period 2002–2016. Results indicate that the treatment required by a patient who is readmitted proves more expensive than keeping the patient under observation for a few extra days in order to achieve a definitive discharge. Moreover, this additional cost follows an increasing temporal trend, especially in times of expansion when the availability of resources is greater. Given that the results indicate that readmissions imply an additional cost for the hospital system, they must be contained. In fact, readmission rates are a significant component of current hospital sector activity improvement strategies. Therefore, knowing the cost which readmission implies is relevant for the design of policies that seek to penalize those hospitals with high readmission rates.

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