Scale economies in the health sector: The effect of hospital volume on health gains from hip replacement surgery

Abstract This study investigates the causal effect of hospital volume on health gains from hip replacement surgery in the English National Health Service. We exploit a unique dataset, which links routine hospital records and patient-reported outcome measures (PROMs) for all public hospitals in England between 2011 and 2015. PROMs assess patients’ health along key dimensions of pain and mobility shortly before and six months after the surgery. We investigate whether higher hospital volume increases patient health six months post-surgery, conditioning on severity through an accurate measure of pre-surgery health, other patient medical and socioeconomic indicators and a rich set of hospital characteristics. We address possible reverse-causality bias due to hospital demand being responsive to quality by constructing a measure of predicted hospital volumes based on a patient choice model, in line with approaches adopted in the hospital competition literature. Results from a pooled OLS model show that the observed effect of volume on health outcomes in hip replacement surgery is positive and clinically small, but no longer statistically significant once we account for the endogeneity of volume. Results from an alternative specification with hospital fixed effects further confirm that hospital volume does not have a causal effect on health outcomes.