Economies of scale result when a hospital realizes increases in the average cost per patient day as more patients are treated.
The correct answer and explanation is:
The statement is false. Economies of scale occur when a hospital experiences decreases in the average cost per patient day as the number of patients increases.
Here’s an explanation:
Economies of scale refer to the cost advantages that a business or organization, like a hospital, can achieve due to an increase in the scale of its operations. This typically results in a reduction in the per-unit cost of goods or services produced as the volume of production rises. In the context of healthcare, economies of scale can occur when a hospital treats more patients, which allows for the spread of fixed costs (e.g., administrative overhead, capital expenses) over a larger number of patients.
For instance, fixed costs like the cost of the hospital building, equipment, and staff salaries do not change with the number of patients treated. As the hospital treats more patients, these fixed costs are distributed across a greater number of individuals, which lowers the average cost per patient. Additionally, hospitals may be able to negotiate lower prices with suppliers or increase the efficiency of their operations as they scale up.
However, there are limits to economies of scale. After a certain point, if a hospital becomes too large, it might encounter diseconomies of scale, where the average cost per patient day starts to rise. This can happen due to factors such as decreased efficiency, difficulty in managing a large workforce, or increased complexity in operations.
Thus, economies of scale are linked to a reduction in the average cost per patient day as patient volume increases, not an increase in costs.