Transfer Pricing in Hospitals and Efficiency of Physicians

Abstract

The objective is to investigate theoretically and empirically how the efficiency of the physicians involved in anesthesia and surgery can be optimized by the introduction of transfer pricing for anesthesia services. The anesthesiology data of approximately 57,000 operations carried out at the University Hospital Hamburg-Eppendorf (UKE) in Germany in the period from 2000 to 2002 are analyzed using parametric and non-parametric methods. The principal finding of the empirical analysis is that the efficiency of the physicians involved in anesthesia and surgery at the UKE improved after the introduction of transfer pricing.

Operating room management and operating room productivity: the case of Germany

“…For our analysis, the "unlimited" availability of surgeons due to the in-house surgical staffing system makes any special provision for a surgeon's availability unnecessary. A number of studies [15,16] address surgical efficiency directly and more completely than any examination of our data would make possible.…”

Cost accounting to determine prices: How well do prices reflect costs in the German DRG-system?

“…This is only possible if case-related treatment costs have been assigned accurately by the participating hospitals. The validity of the results of the per-case cost calculation is heavily dependent on the quality of information about resource utilisation at the case level [17,18]. If therefore a significant portion of costs is calculated across patient days without using a stepdown or a differentiated allocation formula, the results will not produce cost weights equivalent to the complexity of service and would instead most likely correlate to the length of stay, the parameter which has been used for cost allocation.…”

Modular organization and hospital performance

“…Nevertheless, the growing use of profit centres and transfer pricing in hospitals shows that the implementation of internal market mechanisms in health care is quite advantageous. 15,16 Regarding the service modules, it is even possible to replace the internal market mechanisms by external markets. Outsourcing tasks such as cleaning or catering has become a popular tool to realize extensive cost reductions in hospitals.…”

“…As already mentioned above, transfer pricing and profit centres are management tools which are implemented to substitute hierarchical coordination by internal market mechanisms in hospitals. 15,16 Again, both TRP and PRC were rated on a scale from 1 to 5. provided the basis for measuring 'small organizational units'. However, the use of these figures disregards that the size of an organizational unit is related to the complexity of the processes.…”