Does Scale of Public Hospitals Affect Bargaining Power? Evidence From Japan

Document Type : Original Article


1 Graduate School of Media and Governance, Keio University, Kanagawa, Japan

2 Center for Community Medicine, Jichi Medical University, Tochigi, Japan

3 Faculty of Policy Management, Keio University, Kanagawa, Japan


Many of public hospitals in Japan have had a deficit for a long time. Japanese local governments have been encouraging public hospitals to use group purchasing of drugs to benefit from the economies of scale, and increase their bargaining power for obtaining discounts in drug purchasing, thus improving their financial situation. In this study, we empirically investigate whether or not the scale of public hospitals actually affects their bargaining power.
Using micro-level panel data on public hospitals, we examine the effect of the scale of public hospitals (in terms of the number of occupancy beds) on drug purchasing efficiency (DPE) (the average discount rate in purchasing drugs) as a proxy variable of the bargaining power. Additionally, we evaluate the effect of the presence or absence of management responsibility in public hospital for economic efficiency as the proxy variable of an economic incentive and its interaction with the hospital scales on the bargaining power. In the estimations, we use the fixed effects model to control the heterogeneity of each hospital in order to estimate reliable parameters.
The scale of public hospitals does not positively correlate with bargaining power, whereas the management responsibility for economic efficiency does. Additionally, scale does not interact with management responsibility.
Giving management responsibility for economic efficiency to public hospitals is a more reliable way of gaining bargaining power in drug purchasing, rather than promoting the increase in scale of these public hospitals.


Main Subjects

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  • Receive Date: 21 July 2016
  • Revise Date: 21 February 2017
  • Accept Date: 21 February 2017
  • First Publish Date: 01 December 2017