Measuring Welfare from Ambulatory Surgery Centers: A Spatial Analysis of Demand for Healthcare Facilities

ASHEcon 3rd Biennial Conference, June 2010

Ellerie Weber

“The purpose of this study is to estimate structural elements of consumers’ demand functions for healthcare facilities, particularly hospitals and ambulatory surgery centers (ASCs), towards the goal of answering questions about welfare gains earned from the introduction of ASCs. For identification I use spatial variation across patients and facilities. In line with the existing literature, I show that there is a strong spatial component to demand. Developing a discrete choice model of demand for healthcare facilities, I estimate structural parameters from consumers’ demand functions from nested logit and mixed logit (also called random coefficient) specifications. Travel costs are found to be the best predictor of consumers’ healthcare facility purchase. Insurance variables are found to be a significant choice in the nest decision of ASC or hospital. The estimation methodology enables calculation of a cross-time substitution matrix to explain how consumers substitute between facilities over space. Finally, I measure how consumer welfare would change if a subset of facilities (ASCs) were removed from consumers’ choice sets. All of this is done without explicitly including a price variable, but instead using time and travel costs to give meaning to welfare numbers. Welfare loss from the elimination of ASCs is found to be small, less than five minutes of welfare loss per patient for a given procedure.”