How reliable are hospital efficiency estimates? Exploiting the dual to homothetic production

Production function for modeling hospital activities. The case of Polish county hospitals

The aim of the article is to present the use of production function as a source of knowledge for managers of county hospitals to make rational decisions so as to achieve economic efficiency, including naturally the financial efficiency. The healthcare sector in each country differs from other sectors of the economy. The economically effective operation of county hospitals in Poland is very difficult due to all their determinants. Therefore, all economic analyses should be used to help hospital managers achieve this goal, and production function remains underestimated as a source of knowledge. The Cobb-Douglas and translog production functions were used as sources of knowledge for decision-making by county hospitals. Total number of patient-days was a dependent variable; and the total number of beds, the number of doctors and nurses (in full time equivalents, FTEs) and costs (of materials, electricity, services) were a set of explanatory variables. The significance of explanatory variables most often appeared in models accounting for the workload of nurses. On the other hand, the greatest fit measured with the residual standard error was characterised by models accounting for the number of beds. For each type of production function, the diversified results obtained show the properties of production function. This kind of knowledge is not provided by analyses which are not based on production functions.

Efficiency and profitability in US not-for-profit hospitals

This article examines the relationship between hospital profitability and efficiency. A cross-section of 1317 U.S. metropolitan, acute care, not-for-profit hospitals for the year 2015 was employed. We use a frontier method, stochastic frontier analysis, to estimate hospital efficiency. Total margin and operating margin were used as profit variables in OLS regressions that were corrected for heteroskedacity. In addition to estimated efficiency, control variables for internal and external correlates of profitability were included in the regression models. We found that more efficient hospitals were also more profitable. The results show a positive relationship between profitability and size, concentration of output, occupancy rate and membership in a multi-hospital system. An inverse relationship was found between profits and academic medical centers, average length of stay, location in a Medicaid expansion state, Medicaid and Medicare share of admissions, and unemployment rate. The results of a Hausman test indicates that efficiency is exogenous in the profit equations. The findings suggest that not-for-profit hospitals will be responsive to incentives for increasing efficiency and use market power to increase surplus to pursue their objectives.

Productivity growth and quality changes of hospitals in Taiwan: does ownership matter?

As the competition in the Taiwanese medical industry becomes increasingly fierce, public hospitals are confronted with challenges in orientation and operations. This study measured changes in the operational efficiency of public and their competitors, non-public hospitals, in Taiwan. This study considered differences in technology and scale between public and non-public hospitals and adopted the quality-incorporating metafrontier Malmquist productivity index to analyze inputs, outputs, and quality achievements of hospitals. The data consisted of 40 public hospitals and 79 non-public hospitals in Taiwan during the period 2008-2014. This study measured productivity growth and quality changes. Moreover, it further identified technological gaps and quality gaps in different types of hospitals with respect to the metafrontier. At the same time, comparisons of changes in quality between public and non-public hospitals were also examined. The empirical results showed that public hospitals were better than non-public ones in terms of productivity. Meanwhile, it was also found that most of the decomposition in productivity was higher in public hospitals than in non-public ones, especially in terms of improvements in technology and quality. This paper presented public hospitals outperformed non-public ones during the research period in spite of the fact that private hospitals had become larger and group-oriented. Therefore, public hospitals and regulators made appropriate adjustments and responses in the face of the pressure of competition in the market.

Determinants of transient and persistent hospital efficiency: The case of Italy

In this paper, we extend the 4-random-component closed skew-normal stochastic frontier model by including exogenous determinants of hospital persistent (long-run) and transient (short-run) inefficiency, separated from unobserved heterogeneity. We apply this new model to a dataset composed by 133 Italian hospitals during the period 2008-2013. We show that average total inefficiency is about 23%, higher than previous estimates; hence, a model where the different types of inefficiency and hospital unobserved characteristics are not confounded allows us to get less biased estimates of hospital inefficiency. Moreover, we find that transient efficiency is more important than persistent efficiency, as it accounts for 60% of the total one. Last, we find that ownership (for-profit hospitals are more transiently inefficient and less persistently inefficient than not-for-profit ones, whereas public hospitals are less transiently inefficient than not-for-profit ones), specialization (specialized hospitals are more transiently inefficient than general ones; i.e., there is evidence of scope economies in short-run efficiency), and size (large-sized hospitals are better than medium and small ones in terms of transient inefficiency) are determinants of both types of inefficiency, although we do not find any statistically significant effect of multihospital systems and teaching hospitals.

Characteristics of High- and Low-Efficiency Hospitals

We compared performance, operating characteristics, and market environments of low- and high-efficiency hospitals in the 37 states that supplied inpatient data to the Healthcare Cost and Utilization Project from 2006 to 2010. Hospital cost-inefficiency estimates using stochastic frontier analysis were generated. Hospitals were then grouped into the 100 most- and 100 least-efficient hospitals for subsequent analysis. Compared with the least efficient hospitals, high-efficiency hospitals tended to have lower average costs, higher labor productivity, and higher profit margins. The most efficient hospitals tended to be nonteaching, investor-owned, and members of multihospital systems. Hospitals in the high-efficiency group were located in areas with lower health maintenance organization penetration and less competition, and they had a higher share of Medicaid and Medicare admissions. Results of the analysis suggest there are opportunities for public policies to support improved efficiency in the hospital sector.

Comparison between a multi-pavilion hospital and a single pavilion hospital

Background and aim

Defining and measuring hospital efficiency is a hard task, in spite of the agreement that hospitals need to be efficient. Thus, while research might focus on the relationship between costs and outcomes, measurements differ significantly across studies.

The aim of the present study is to compare a multi-pavilion hospital with a single hospital from Cluj-Napoca, Romania.

Methods

Statistical and financial (effective expenses, salaries, drugs, materials, reagents, food) indicators were used to compare two hospitals from Cluj-Napoca: the Adults’ Clinical Hospital in Cluj-Napoca, and the Rehabilitation Hospital from Cluj-Napoca respectively. Data related to these indicators were collected at each hospital level, between 2004 and 2010.

Results

When investigating the expenses on medicine, data showed the two hospitals had similar values in 2004, 13.09% and 14.43% for the multi-pavilion hospital and single hospital, respectively. After 2004, the expenses started to drop simultaneously, being around 11% in 2006 and 2007 for both hospitals. The mortality rate was significantly different for the two hospitals. The multi-pavilion had a much higher mortality rate, when compared to the single hospital. From 2004 until 2007 a steady increase was observed for the multi-pavilion hospital, from 1.09 to 2.57 respectively.

Conclusion

The significant differences found between the two hospitals look being unavoidable, as long as they seem to stem from the hospitals’ ownership, their addressability and their targeted diseases and associated procedures.

Predictors of Gaps in Patient Safety and Quality in U.S. Hospitals

OBJECTIVE

To explore predictors of gaps between observed and best possible Hospital Compare scores in U.S. hospitals.

DATA SOURCES

American Hospital Association Annual Survey; Area Resource Files; Centers for Medicare and Medicaid Services Medicare Provider and Analysis Review; and Hospital Compare data.

STUDY DESIGN

Using Stochastic Frontier Analysis and secondary cross-sectional data, gaps between the best possible and actual scores of Hospital Compare quality measures were estimated. Poisson regressions were used to ascertain financial, organizational, and market predictors of those gaps.

DATA EXTRACTION

Data were cleaned and matched based on hospital Medicare IDs. All U.S. hospitals that matched on analysis variables in 2007 were in the study (1,823-2,747, depending upon gap variable).

PRINCIPAL FINDINGS

Most hospitals have a greater than 10 percent gap in quality indicators. Payer mix, registered nurse staffing, size, case mix index, accreditation, being a teaching hospital, market competition, urban location, and region were strong predictors of gaps, although the direction of the association with gaps was not uniform across outcomes.

CONCLUSIONS

A significant percentage of hospitals have gaps between their best possible and observed quality scores. It may be better to use gap scores than observed scores in payments systems. More SFA research is needed to know how to lower gaps through changes in hospital and market characteristics.

Cost inefficiency under financial strain: a stochastic frontier analysis of hospitals in Washington State through the Great Recession

The importance of increasing cost efficiency for community hospitals in the United States has been underscored by the Great Recession and the ever-changing health care reimbursement environment. Previous studies have shown mixed evidence with regards to the relationship between linking hospitals' reimbursement to quality of care and cost efficiency. Moreover, current evidence suggests that not only inherently financially disadvantaged hospitals (e.g., safety-net providers), but also more financially stable providers, experienced declines to their financial viability throughout the recession. However, little is known about how hospital cost efficiency fared throughout the Great Recession. This study contributes to the literature by using stochastic frontier analysis to analyze cost inefficiency of Washington State hospitals between 2005 and 2012, with controls for patient burden of illness, hospital process of care quality, and hospital outcome quality. The quality measures included in this study function as central measures for the determination of recently implemented pay-for-performance programs. The average estimated level of hospital cost inefficiency before the Great Recession (10.4 %) was lower than it was during the Great Recession (13.5 %) and in its aftermath (14.1 %). Further, the estimated coefficients for summary process of care quality indexes for three health conditions (acute myocardial infarction, pneumonia, and heart failure) suggest that higher quality scores are associated with increased cost inefficiency.

Payment schemes and cost efficiency: evidence from Swiss public hospitals

This paper aims at analysing the impact of prospective payment schemes on cost efficiency of acute care hospitals in Switzerland. We study a panel of 121 public hospitals subject to one of four payment schemes. While several hospitals are still reimbursed on a per diem basis for the treatment of patients, most face flat per-case rates-or mixed schemes, which combine both elements of reimbursement. Thus, unlike previous studies, we are able to simultaneously analyse and isolate the cost-efficiency effects of different payment schemes. By means of stochastic frontier analysis, we first estimate a hospital cost frontier. Using the two-stage approach proposed by Battese and Coelli (Empir Econ 20:325-332, 1995), we then analyse the impact of these payment schemes on the cost efficiency of hospitals. Controlling for hospital characteristics, local market conditions in the 26 Swiss states (cantons), and a time trend, we show that, compared to per diem, hospitals which are reimbursed by flat payment schemes perform better in terms of cost efficiency. Our results suggest that mixed schemes create incentives for cost containment as well, although to a lesser extent. In addition, our findings indicate that cost-efficient hospitals are primarily located in cantons with competitive markets, as measured by the Herfindahl-Hirschman index in inpatient care. Furthermore, our econometric model shows that we obtain biased estimates from frontier analysis if we do not account for heteroscedasticity in the inefficiency term.

The Association of Hospital Cost-Inefficiency With Certificate-of-Need Regulation

Certificate-of-need (CON) regulations can promote hospital efficiency by reducing duplication of services; however, there are practical and theoretical reasons why they might be ineffective, and the empirical evidence generated has been mixed. This study compares the cost-inefficiency of urban, acute care hospitals in states with CON regulations against those in states without CON requirements. Stochastic frontier analysis was performed on pooled time-series, cross-sectional data from 1,552 hospitals in 37 states for the period 2005 to 2009 with controls for variations in hospital product mix, quality, and patient burden of illness. Average estimated cost-inefficiency was less in CON states (8.10%) than in non-CON states (12.46%). Results suggest that CON regulation may be an effective policy instrument in an era of a new medical arms race. However, broader analysis of the effects of CON regulation on efficiency, quality, access, prices, and innovation is needed before a policy recommendation can be made.

Specialty hospitals emulating focused factories: a case study

PURPOSE

For 15 years general hospital managers faced new competition from for-profit specialty hospitals that operate on a "focused factory" model, which threaten to siphon-off the most profitable patients. This paper aims to discuss North American specialty hospitals and to review rising costs impact on general hospital operations. The focus is to discover whether specialty hospitals are more efficient than general hospitals; if so, how significant is the difference and also what can general hospitals do in light of the rising specialty hospitals.

DESIGN/METHODOLOGY/APPROACH

The case study involves stochastic frontier regression analysis using Cobb-Douglas and Translog cost functions to compare Minnesota general and specialty hospital efficiency. Analysis is based on data from 117 general and 19 specialty hospitals.

FINDINGS

The results suggest that specialty hospitals are significantly more efficient than general hospitals. Overall, general hospitals were found to be more than twice as inefficient compared with specialty hospitals in the sample. Some cost-cutting factors highlighted can be implemented to trim rising costs.

PRACTICAL IMPLICATIONS

The case study highlights some managerial levers that general hospital operational managers might use to control rising costs. This also helps them compete with specialty hospitals by reducing overheads and other major costs.

ORIGINALITY/VALUE

The study is based on empirical modeling for an important healthcare operational challenge and provides additional in-depth information that has health policy implications. The analysis and findings enable healthcare managers to guide their institutions in a new direction during a time of change within the industry.

The impact of research on hospital costs of care: an empirical study

The goal of this study was to examine the impact of research activities on hospital costs and lengths of stay in French public hospitals. Our data consist of a random sample of 30000 inpatient stays in 38 hospitals that were extracted from the French Hospital Cost Survey database. Hospital characteristics were added using data from a French national survey and performing a bibliometric study. This is a retrospective study of hospitalizations. We used multilevel modelling. We considered separate models to explain the cost per day and the length of hospital stay (LOS). Research output was defined based on the quartiles of the distribution of the number of impact-weighted scientific publications produced in our sample of hospitals over a 6-year period. Research production was associated with a higher cost of care. The cost per day was 19% higher in hospitals in the 3rd quartile and 42% higher in hospitals in the 4th quartile compared to that in hospitals that were not involved in research activities. This result was sensitive to the type of care under consideration. The effect was stronger in oncology but not significant in routine care. Scientific production did not impact the LOS.

Measuring Shared Inefficiency Between Hospital Cost Centers

In this article, a combination of data envelopment analysis, spreadsheet modeling and regression techniques is applied to a panel of nonprofit Washington State hospitals in an effort to determine whether (and if so, to what extent) inefficiency in one hospital cost center is shared with inefficiency in other cost centers. The findings suggest that a significant amount of inefficiency is shared across hospital cost centers. The authors further determine that certain cost centers contribute more to the overall performance of a given hospital than others. As such, managerial decisions and government policies designed to enhance hospital efficiency should be implemented differently, depending on the characteristics of the hospital in question.

What have we learned from the application of stochastic frontier analysis to U.S. hospitals?

This article focuses on the lessons learned from stochastic frontier analysis studies of U.S. hospitals, of which at least 27 have been published. A brief discussion of frontier techniques is provided, but a technical review of the literature is not included because overviews of estimation issues have been published recently. The primary focus is on the correlates of hospital inefficiency. In addition to examining the association of market pressures and hospital inefficiency, the authors also examined the relationship between inefficiency and hospital behavior (e.g., hospital exits) and inefficiency and other measures of hospital performance (e.g., outcome measures of quality). The authors found that consensus is emerging on the relationship of some factors to hospital efficiency; however, further research is needed to better understand others. The application of stochastic frontier analysis to specific policy issues is in its infancy; however, the methodology holds promise for being useful in certain contexts.

A systematic review of health care efficiency measures

OBJECTIVE

To review and characterize existing health care efficiency measures in order to facilitate a common understanding about the adequacy of these methods.

DATA SOURCES

Review of the MedLine and EconLit databases for articles published from 1990 to 2008, as well as search of the "gray" literature for additional measures developed by private organizations.

STUDY DESIGN

We performed a systematic review for existing efficiency measures. We classified the efficiency measures by perspective, outputs, inputs, methods used, and reporting of scientific soundness.

PRINCIPAL FINDINGS

We identified 265 measures in the peer-reviewed literature and eight measures in the gray literature, with little overlap between the two sets of measures. Almost all of the measures did not explicitly consider the quality of care. Thus, if quality varies substantially across groups, which is likely in some cases, the measures reflect only the costs of care, not efficiency. Evidence on the measures' scientific soundness was mostly lacking: evidence on reliability or validity was reported for six measures (2.3 percent) and sensitivity analyses were reported for 67 measures (25.3 percent).

CONCLUSIONS

Efficiency measures have been subjected to few rigorous evaluations of reliability and validity, and methods of accounting for quality of care in efficiency measurement are not well developed at this time. Use of these measures without greater understanding of these issues is likely to engender resistance from providers and could lead to unintended consequences.

Efficiency of Thai provincial public hospitals during the introduction of universal health coverage using capitation

We investigate the impact of implementing capitated-based Universal Health Coverage (UC) in Thailand on technical efficiency in larger public hospitals during the policy transition period. We measure efficiency before and during the transition period of UC using a two-stage analysis with Data Envelopment Analysis, bootstrap DEA, and truncated regressions. Our analysis indicates that during the transition period efficiency in larger public hospitals across the country increased. The findings differed by region, and hospitals in provinces with more wealth not only started with greater efficiency, but improved their relative position during the transitional phases of the UC system.

Specialty and full-service hospitals: a comparative cost analysis

OBJECTIVE

To compare the costs of physician-owned cardiac, orthopedic, and surgical single specialty hospitals with those of full-service hospital competitors.

DATA SOURCES

The primary data sources are the Medicare Cost Reports for 1998-2004 and hospital inpatient discharge data for three of the states where single specialty hospitals are most prevalent, Texas, California, and Arizona. The latter were obtained from the Texas Department of State Health Services, the California Office of Statewide Health Planning and Development, and the Agency for Healthcare Research and Quality Healthcare Cost and Utilization Project. Additional data comes from the American Hospital Association Annual Survey Database.

STUDY DESIGN

We identified all physician-owned cardiac, orthopedic, and surgical specialty hospitals in these three states as well as all full-service acute care hospitals serving the same market areas, defined using Dartmouth Hospital Referral Regions. We estimated a hospital cost function using stochastic frontier regression analysis, and generated hospital specific inefficiency measures. Application of t-tests of significance compared the inefficiency measures of specialty hospitals with those of full-service hospitals to make general comparisons between these classes of hospitals.

PRINCIPAL FINDINGS

Results do not provide evidence that specialty hospitals are more efficient than the full-service hospitals with whom they compete. In particular, orthopedic and surgical specialty hospitals appear to have significantly higher levels of cost inefficiency. Cardiac hospitals, however, do not appear to be different from competitors in this respect.

CONCLUSIONS

Policymakers should not embrace the assumption that physician-owned specialty hospitals produce patient care more efficiently than their full-service hospital competitors.

Measuring hospital inefficiency: the effects of controlling for quality and patient burden of illness

OBJECTIVE

To assess the impact of employing a variety of controls for hospital quality and patient burden of illness on the mean estimated inefficiency and relative ranking of hospitals generated by stochastic frontier analysis (SFA).

STUDY SETTING

This study included urban U.S. hospitals in 20 states operating in 2001. DATA DESIGN/DATA COLLECTION: We took hospital data for 1,290 hospitals from the American Hospital Association Annual Survey and the Medicare Cost Reports. We employed a variety of controls for hospital quality and patient burden of illness. Among the variables we used were a subset of the quality indicators generated from the application of the Patient Safety Indicator and Inpatient Quality Indicator modules of the Agency for Healthcare Research and Quality, Quality Indicator software to the Healthcare Cost and Utilization Project (HCUP), State Inpatient Databases. Measures of a component of patient burden of illness came from the application of the Comorbidity Software to HCUP data.

DATA ANALYSIS

We used SFA to estimate hospital cost-inefficiency. We tested key assumptions of the SFA model with likelihood ratio tests.

PRINCIPAL FINDINGS

The measures produced by the Comorbidity Software appear to account for variations in patient burden of illness that had previously been masquerading as inefficiency. Outcome measures of quality can provide useful insight into a hospital's operations but may have little impact on estimated inefficiency once controls for structural quality and patient burden of illness have been employed.

CONCLUSIONS

Choices about controlling for quality and patient burden of illness can have a nontrivial impact on mean estimated hospital inefficiency and the relative ranking of hospitals generated by SFA.

Cost and technical efficiency of German hospitals: does ownership matter?

This paper is the first to investigate both the technical and cost efficiency of more than 1500 German general hospitals. More specifically, it deals with the question how hospital efficiency varies with ownership, patient structure, and other exogenous factors, which are neither inputs to nor outputs of the production process. The empirical results for the years from 2001 to 2003 indicate that private and non-profit hospitals are on average less cost efficient and less technically efficient than publicly owned hospitals. The hospital rankings based on estimated efficiency scores turn out to be negatively correlated with average length of stay, which is highest in private hospitals. The results are derived by conducting a Stochastic Frontier Analysis assuming both Cobb-Douglas and translog production technologies and using a newly available and multifaceted administrative German data set.

Cost inefficiency and hospital health outcomes

This study explores the association between cost inefficiency and health outcomes in a national sample of acute-care hospitals in the US over the period 1999-2001, with health outcomes being measured by both mortality and complications rates. The empirical analysis examines health outcomes as a function of cost inefficiency and other determinants of outcomes, using stochastic frontier analysis to obtain hospital cost inefficiency scores. The results showed no systematic pattern of association between cost inefficiency and hospital health outcomes; the basic results were unchanged regardless of whether cost inefficiency was measured with or without using instrumental variables. The analysis also indicated, however, that the association between cost inefficiency and health outcomes may vary substantially across geographical regions. The study highlights the importance of distinguishing between 'good' costs that reflect the efficient use of resources and 'bad' costs that stem from waste and other forms of inefficiency. In particular, the study's results suggest that hospital programs focused on reducing cost inefficiency are unlikely to be associated with worsened hospital-level mortality or complications rates, while, on the other hand, across-the-board reductions in cost could well have adverse consequences on health outcomes by reducing efficient as well as inefficient costs.

Effects of ownership, subsidization and teaching activities on hospital costs in Switzerland

This paper explores the cost structure of Swiss hospitals, focusing on differences due to teaching activities and those related to ownership and subsidization types. A stochastic total cost frontier with a Cobb-Douglas functional form has been estimated for a panel of 148 general hospitals over the six-year period from 1998 to 2003. Inpatient cases adjusted by DRG cost weights and ambulatory revenues are considered as two separate outputs. The adopted econometric specification allows for unobserved heterogeneity across hospitals. The results suggest that teaching activities are an important cost-driving factor and hospitals that have a broader range of specialization are relatively more costly. The excess costs of university hospitals can be explained by more extensive teaching activities as well as the relative complexity of the offered medical treatments from a teaching point of view. However, even after controlling for such differences university hospitals have shown a relatively low cost-efficiency especially in the first two or three years of the sample period. The analysis does not provide any evidence of significant efficiency differences across ownership/subsidy categories.

Hospital inefficiency: what is the impact of membership in different types of systems?

The primary objective of this study is to assess whether systematic differences in inefficiency are associated with hospital membership in different types of systems. We employed the Battese/Coelli simultaneous stochastic frontier analysis (SFA) technique to estimate hospital cost inefficiency. Mean estimated inefficiency was 8.42%. Membership in different types of systems was related to estimated cost inefficiency (p < .05). Compared to hospitals that were members of centralized health systems, membership in centralized physician/insurance or decentralized systems was associated with decreased inefficiency; membership in independent systems was associated with increased inefficiency.

Stochastic frontier analysis of hospital inefficiency: a review of empirical issues and an assessment of robustness

Twenty stochastic frontier analysis (SFA) studies of hospital inefficiency in the United States were analyzed. Results from best-practice methods were compared against previously used methods in hospital studies to ascertain the robustness of SFA in estimating cost inefficiency. To compare past studies and analyze new data, SFA methods were varied by (a) the assumptions of the structure of costs and distribution of the error term, (b) inclusion of quality and product descriptor measures, and (c) use of simultaneous and two-stage estimation techniques. SFA results were relatively insensitive to several model variations.

Optimism, pessimism and the compensating income variation of cardiovascular disease: a two-tiered quality of life stochastic frontier model

Self-reported measures of life satisfaction may be biased by optimistic or pessimistic dispositions of respondents. In this paper we view life satisfaction as stochastic and estimate a two-tiered quality of life stochastic frontier model to account for upward and downward biases in self-reported quality of life questions. Using the British Household Panel Survey 1995, we interpret the two one-sided errors to represent optimism and pessimism, respectively. The results suggest that the realistic values of life satisfaction are closer to the pessimistic values than to the optimistic ones. It is further found that men are relatively more optimistic and less pessimistic than women. Cardiovascular disease makes people both less optimistic and less pessimistic. The results are used to calculate the compensating income variation (CIV) of cardiovascular disease. It is found that the CIV is substantial.

Performance-based budgeting in the public sector: an illustration from the VA health care system

This paper estimates frontier cost functions for US Department of Veterans Affairs (VA) hospitals in FY2000 that are consistent with economic theory and explicitly account for cost differences across patients' risk, level of access to care, quality of care, and hospital-specific characteristics. Results indicate that on average VA hospitals in FY2000 operate at efficiency levels of 94%, as compared to previous studies on US private sector hospitals that average closer to 90% efficient. Using these cost frontiers, management systems potentially could be implemented to enhance the equitable allocation of the VA medical care global budget and systematically distribute funds across hospitals and networks. The paper also provides recommendations to improve the efficiency of delivering health care services applicable to public sector organizations.

The cost efficiency and clinical quality of institutional long-term care for the elderly

This study applied the stochastic frontier cost function with inefficiency effects to estimate the association between quality of care and cost efficiency in institutional long-term care wards for the elderly in Finland. We used several clinical quality indicators for indicating adverse care processes and outcomes, based on the Resident Assessment Instrument (RAI)/Minimum Data Set (MDS). Average cost inefficiency among the wards was 22%. We found an association between the clinical quality indicators and cost inefficiency. Higher prevalence of pressure ulcers was associated with higher costs, whereas the higher prevalence of use of depressants and hypnotics increased inefficiency.

The quality of mercy: social health insurance in the charitable liberal state

This paper has two, mutually supportive purposes: (1) to show that the modern economic rationale for universal social health insurance is consistent with the classical liberal understanding of property rights; (2) to show that the writings of the leading liberal sages-Locke, Smith, Mill, and Hayek-are congenial to programs economically similar to universal social health insurance, and, in Hayek's cases, were specifically approving. It is hoped that these facts and reasonings, which are unlikely to be known in toto to those who do not normally study across the intersection of philosophy and economics, will encourage a dialogue that reasserts in a non-ideological way the neglected role of property rights in the health economic assessment of social health insurance alternatives.

Does capitated contracting improve efficiency? Evidence from California hospitals

This study examines the effect of capitated contracting on hospital efficiency to better understand strategies related to the recent financial crisis in the California health care market. Our findings indicate that less efficient hospitals are more likely to participate in capitated contracting. As a result, hospitals with capitated contracts are, on average, less efficient than hospitals without capitated contracts. Hospital efficiency generally increases with respect to the degree of capitation involvement. The efficiency improvement, however, becomes insignificant when capitation exposures are already high. Thus, hospital executives should not be overly optimistic about efficiency gains obtained in capitated contracting and should control the degree of capitation involvement.

Non-parametric and parametric applications measuring efficiency in health care

This paper reviews 188 published papers on frontier efficiency measurement. The techniques used are mainly based on non-parametric data envelopment analysis, but there is increasing use of parametric techniques, such as stochastic frontier analysis. Applications both to hospitals and wider health care areas are reviewed and summarised, and some meta-type analysis undertaken. Results appear to confirm earlier findings that public provision demonstrates less variability than private. The paper is meant as a resource in itself, but also points to the future in terms of possible directions for research in efficiency measurement in health care and health.

How much confidence should we place in efficiency estimates?

Ordinary least squares (OLS) and stochastic frontier (SF) analyses are commonly used to estimate industry-level and firm-specific efficiency. Using cross-sectional data for English public hospitals, a total cost function based on a specification developed by the English Department of Health is estimated. Confidence intervals are calculated around the OLS residuals and around the inefficiency component of the SF residuals. Sensitivity analysis is conducted to assess whether conclusions about relative performance are robust to choices of error distribution, functional form and model specification. It is concluded that estimates of relative hospital efficiency are sensitive to estimation decisions and that little confidence can be placed in the point estimates for individual hospitals. The use of these techniques to set annual performance targets should be avoided.

Does the implementation of responsibility centers, total quality management, and physician fee programs improve hospital efficiency? Evidence from Taiwan hospitals

OBJECTIVES

This study evaluates whether the implementation of various types of hospital-physician integration strategies, such as the responsibility centers system, total quality management, and physician fee programs, enhance efficiency for Taiwan hospitals. Because hospitals in Taiwan are structurally similar to staff-model HMOs, the study has implications beyond Taiwan.

RESEARCH DESIGN

The Data Envelopment Analysis model is applied to measure hospital efficiency. Hospital efficiency refers to the ability to produce more outputs (eg, ambulatory and emergency visits, inpatient days, and inpatient visits) with the same inputs (eg, physicians, nurses, ancillary labor, and hospital beds). The sample consists of 90 general hospitals in Taiwan from 1994 to 1996. In addition, multitobit regression analysis is used to simultaneously estimate the effects of the hospital-physician integration strategies and provide better control for the effect of other factors (eg, size, degree of competition, ownership structure, teaching status, and the change in regulatory regime) that may also affect hospital efficiency.

RESULTS

When evaluating the hospital-physician integration strategies individually, hospitals that implemented the responsibility centers system, total quality management, and physician fee programs were more efficient than hospitals that did not. Controlling for other factors using the multitobit model, hospitals that implemented physician fee programs remained significantly more efficient than others. In addition, hospitals that implemented total quality management were more efficient when they had implemented the strategy for at least 2 years. Hospitals that implemented the responsibility centers system were more efficient but only when integrating the system with formal incentive schemes.

CONCLUSIONS

Physician fee programs seem to provide the most direct and robust incentives to enhance hospital efficiency under a fee-for-service regime like that in Taiwan. Because of time-lagged effects, hospitals that implemented the total quality management programs were more efficient but only when the programs had been implemented for at least 2 years. The responsibility centers system can also be effective when the system was associated with formal incentive schemes. The results indicate the importance of having both the individual-based and team-based incentives in place. Finally, the hospital-physician integration strategies appear to be effective individually, but the results change significantly when they are evaluated simultaneously, together with other control variables, in the tobit model. This indicates the importance of investigating hospital-physician integration strategies as a portfolio instead of a single tool.