Substituting inpatient for outpatient care: what is the impact on hospital costs and efficiency?

Substitution of inpatient for outpatient care is seen as a means to increase patient throughput and control costs. The purpose of this study was to assess the impact of increased outpatient care on hospital costs and efficiency using Finnish specialty-level data from years 2003-2006 to which we applied stochastic frontier analysis. The results reveal that outpatient services have a smaller impact on total costs than inpatient services. At the same time, increased outpatient activity appears to have an adverse effect on estimated cost efficiency. This counterintuitive finding is probably due to the low weight given to outpatient activities by the Diagnosis Related Groups (DRG) system. A common weighting for inpatient and outpatient services is required in order to assess accurately the impact of outpatient care on efficiency.