Quality-adjusted output cost economies of US adult versus paediatric physical therapy production

Gregory G. Lubiani and Albert Okunade

Applied Economics Letters, 2014, vol. 21, issue 1, 6-12

Abstract: With rapid population ageing and continuing proliferation of diseases limiting physical mobility and flexibility, timely research is needed on the operational economics of US physical therapy clinics at the disaggregated level (e.g., adult versus paediatric). This is because of potential variations in the cost economies, reimbursement structures and quality-adjusted outcome mandates of the reformed health care system. As such, the production technology structure and resource use flexibility implications in adult compared with paediatric physical therapy would tend to differ. Specifying a Generalized Translog (GTL) cost-minimization model, the core innovation in this article is investigating the cost structure differences between 'for-profit' adult and paediatric physical therapy operations. Using a uniquely rich data set of 4552 bi-weekly, site-specific operations across 27 US states with measurements on output, labour inputs (clinical, technicians, support staff) and capital, we separately model the economic contents of adult and paediatric physical therapy clinics. Results suggest that paediatric clinics do, indeed, have a statistically different operational cost structure compared with adult centres. The estimated factor demand elasticities of pair-wise factor substitutions (own and cross-price, Morishima and Shadow) and scale economies also differ, among other technological characteristics. These results have operational policy implications.

Date: 2014
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DOI: 10.1080/13504851.2013.831166

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