Cost efficiency, factor interchange, and technical progress in US specialized hospital pharmacies

Specialized hospitals perform unique, technologically more complex, and relatively expensive medical procedures. Growing use of high-cost biotechnology drugs and increased clinical pharmacy tasks at these facilities have increased costs. This paper used a unique data set supplied by Eli Lilly, and a dual translog cost system to model the costs of specialized hospital pharmacy production. Results show that the potential substitution of pharmacy technicians for registered pharmacists and the decomposed technical change savings effects of expensive factors of production offer the greatest opportunities for containing costs. Slight diseconomies of scale were also observed. © 1998 John Wiley & Sons, Ltd.