An empirical study of economies of scope in home healthcare.

OBJECTIVE To apply the economic theory of economies of scope to the home healthcare industry. DATA SOURCES Data on 488 observations obtained from the Cost Report (HCFA Form 1728-86) of all Connecticut state-licensed, Medicare-certified home health agencies. STUDY DESIGN The Cost Report was the primary source of data for this study. Information on total cost, scope, and other related factors was collected. Logarithmic and nonlinear regression analyses were used to identify factors related to scope and also to test for economies of scope. DATA COLLECTION METHOD Data collected were both cross-sectional and time series (from 1988-1992). Data accuracy was verified using description of frequencies, measures of central tendency and variation, and a calculation package so that a computer calculation on the data could be compared with the agency's calculation. PRINCIPAL FINDINGS It was determined that initially as scope increases, costs go down, thus proving economies of scope. For larger values of scope, it was determined that costs go up, proving diseconomies of scope. CONCLUSIONS Many of the home health agencies included in this study provide more services than is cost effective given the economic theory of economies of scope.