Frontier estimation: how useful a tool for health economics?

Hospital cost efficiency: an examination of US acute care inpatient hospitals

The use of stochastic frontier models for inference on hospital efficiency is complicated by the inability to fully control for quality differences across hospitals. Additionally, the potential existence of cross-sectional dependence due to the presence of unobserved common factors leads to endogeneity problems that can bias both cost function and efficiency estimates. Using a panel consisting of 1518 hospitals for the years 1996-2013 (T = 18), I adopt techniques for dealing with long, cross-sectionally dependent panel data in order to estimate cost parameters and hospital specific efficiency. In particular, I employ the estimation technique proposed by Bai (Econometrica 77(4):1229-1279, 2009), which assumes that the unobservable heterogenous effects have a factor structure. I find evidence of considerable scale economies and that hospital cost inefficiencies have been increasing during the period of 1996-2013, and that the growth in expenditures is, in part, driven by spending that increases patient satisfaction, but that does not significantly contribute to improved patient health outcomes.

Assessing the Efficiency and Productivity of the Hospital Clinics on the Island of Rhodes during the COVID-19 Pandemic

(1) Background: The aim was to measure the efficiency and productivity of 15 specialty clinics during the COVID-19 pandemic period 2020-2021 in the General Hospital of Rhodes. (2) Methods: An input-oriented data envelopment analysis and the Malmquist productivity index are used. Labor and capital were used as inputs, and in-patient discharges and days were used as outputs. (3) Results: Five out of the seven clinics in the pathology sector appeared fully efficient with an optimal productivity, and the rest showed progress in 2021. In 2020 the COVID-19 pathology clinic appeared to be inefficient and less productive, while in 2021, it showed a positive performance change. The surgical sector showed very high efficiency rates or even reached an optimal efficiency in both years. The productivity measurement, in most of the surgical clinics, was satisfactory to very high. In 2020 the COVID-19 surgical clinic appeared to be more efficient and productive than in 2021 when its performance declined. (4) Conclusions: The hospital responded to the pressure during the pandemic, by increasing its efficiency and productivity from 2020 to 2021. This was due to the accomplishment of the appropriate organizational changes in the infrastructure, human resources, and technology. The efficiency and productivity assessments should be incorporated in the hospitals' decision making.

Contribution of the Technical Efficiency of Public Health Programs to National Trends and Regional Disparities in Unintentional Childhood Injury in Japan

To achieve the Sustainable Development Goals, strengthening investments in health service inputs has been widely emphasized, but less attention has been paid to tackling variation in the technical efficiency of services. In this study, we estimated the technical efficiency of local public health programs for the prevention of unintentional childhood injury and explored its contribution to national trend changes and regional health disparities in Japan. Efficiency scores were estimated based on the Cobb-Douglas and translog production functions using a true fixed effects model in a stochastic frontier analysis to account for unobserved time-invariant heterogeneity across prefectures. Using public data sources, we compiled panel data from 2001 to 2017 for all 47 prefectures in Japan. We treated disability-adjusted life years (DALYs) as the output, coverage rates of public health programs as inputs, and caregivers' capacity and environmental factors as constraints. To investigate the contribution of efficiency to trend changes and disparities in output, we calculated the predicted DALYs with several measures of inefficiency scores (2001 average, yearly average, and prefecture-year-specific estimates). In the translog model, mean efficiency increased from 0.62 in 2001 to 0.85 in 2017. The efficiency gaps among prefectures narrowed until 2007 and then remained constant until 2017. Holding inefficiency score constant, inputs and constraints contributed to improvements in average DALYs and widened regional gaps. Improved efficiency over the years further contributed to improvements in average DALYs. Efficiency improvement in low-output regions and stagnated improvement in high-output regions offset the trend of widening regional health disparities. Similar results were obtained with the Cobb-Douglas model. Our results demonstrated that assessing the inputs, constraints, output, and technical efficiency of public health programs could provide policy leverage relevant to region-specific conditions and performance to achieve health promotion and equity.

Using Discrete Choice Methodology to Explore the Impact of Patient Room Window Design on Hospital Choice

Evidence-based design has been fundamental to designing healthcare environments for patient outcomes and experience, yet few studies have studied how design factors drive patient choice. 652 patients who recently received care at hospitals across the United States were administered an online discrete choice survey to investigate the factors playing into their choice between hypothetical hospitals. Discrete choice models are widely used to model patient preferences among treatment alternatives, but few studies have utilized this approach to investigate healthcare design alternatives. In the current study, respondents were asked to choose between hypothetical hospitals that differed in patient room design, window features of the room, appointment availability, distance from home, insurance coverage, and HCAHPS ratings. The results demonstrate that patient room design that allowed unobscured access to daylight and views through windows, in-network insurance coverage, closer distance from home, and one-star higher patient experience rating increased the likelihood of a patient's hospital choice. The study broadly explores discrete choice model's applicability to healthcare design and its ability to quantify patient perceptions with a metric meaningful for hospital administrators.

A Novel Hybrid Parametric and Non-Parametric Optimisation Model for Average Technical Efficiency Assessment in Public Hospitals during and Post-COVID-19 Pandemic

The COVID-19 pandemic has had a significant impact on hospitals and healthcare systems around the world. The cost of business disruption combined with lingering COVID-19 costs has placed many public hospitals on a course to insolvency. To quickly return to financial stability, hospitals should implement efficiency measure. An average technical efficiency (ATE) model made up of data envelopment analysis (DEA) and stochastic frontier analysis (SFA) for assessing efficiency in public hospitals during and after the COVID-19 pandemic is offered. The DEA method is a non-parametric method that requires no information other than the input and output quantities. SFA is a parametric method that considers stochastic noise in data and allows statistical testing of hypotheses about production structure and degree of inefficiency. The rationale for using these two competing approaches is to balance each method's strengths, weaknesses and introduce a novel integrated approach. To show the applicability and efficacy of the proposed hybrid VRS-CRS-SFA (VCS) model, a case study is presented.

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.

Nonparametric estimation of a primary care production function in urban Brazil

BACKGROUND

The Brazilian public health system is one of the largest health systems in the world, with a mandate to deliver medical care to more than 200 million Brazilians. The objective of this study is to estimate a production function for primary care in urban Brazil. Our goal is to use flexible estimates to identify heterogeneous returns and complementarities between medical capital and labor.

METHODS

We use a large dataset from 2012 to 2016 (with more than 400 million consultations, 270 thousand physicians, and 11 thousand clinics) to nonparametrically estimate a primary care production function and calculate the elasticity of doctors' visits (output) to two inputs: capital stock (number of clinics) and labor (number of physicians). We benchmark our nonparametric estimates against estimates of a Cobb-Douglas (CD) production function. The CD model was chosen as a baseline because it is arguably the most popular parametric production function model. By comparing our nonparametric results with those from the CD model, our paper shed some light on the limitations of the parametric approach, and on the novelty of nonparametric insights.

RESULTS

The nonparametric results show significantly heterogeneity of returns to both capital and labor, depending on the scale of operation. We find that diseconomies of scale, diminishing returns to scale, and increasing returns to scale are possible, depending on the input range.

CONCLUSIONS

The nonparametric model identifies complementarities between capital and labor, which is essential in designing efficient policy interventions. For example, we find that the response of primary care consultations to labor is steeper when capital level is high. This means that, if the goal is to allocate labor to maximize increases in consultations, adding physicians in cities with a high number of clinics is preferred to allocating physicians to low medical infrastructure municipalities. The results highlight how the CD model hides useful policy information by not accounting for the heterogeneity in the data.

FORMAÇÃO EM GESTÃO PARA APOIO À REFORMA DA ATENÇÃO PRIMÁRIA À SAÚDE EM PORTUGAL E PAÍSES AFRICANOS LUSÓFONOS

Resumo Apresentamos lições que resultaram de atividades de capacitação dos gestores conduzidas em Portugal no contexto da reforma da atenção primária em saúde e nos países africanos de língua oficial portuguesa, em termos do planejamento e da gestão dos serviços hospitalares e de saúde pública. Descrevemos três programas de formação-ação realizados pela Unidade de Saúde Pública Internacional do Instituto de Higiene e Medicina Tropical de Lisboa, com o apoio de parceiros portugueses e internacionais como a Organização Mundial da Saúde e o Instituto de Medicina Social da Universidade do Estado do Rio de Janeiro. Os programas foram desenvolvidos na base da identificação das necessidades de competências dos participantes e focaram a resolução de problemas concretos com o objetivo de ajudar os gestores a enfrentar as dificuldades inerentes aos processos de reforma. Apesar do seu valor intrínseco, por si só não se mostram suficientes, uma vez que são sempre necessários outros mecanismos, como o acompanhamento continuado dos gestores, sistemas de incentivos coerentes com os objetivos das reformas, ferramentas e recursos (financiamento, sistemas de informação, pessoal qualificado suficiente) adequados para implementar as mudanças. Além disso, a sustentabilidade das intervenções de fortalecimento das capacidades carece de apoio continuado dos decisores políticos.

Efficiency of acute public hospitals in the region of Murcia, Spain

Aim: To evaluate the level of efficiency of public acute hospitals situated in the region of Murcia (Spain). Materials & methods: Data from nine acute general hospitals of Murcia's Health Service (SMS by its Spanish acronym) were analyzed over the 2012-2014 period. The data were extracted from the In-patient Health Establishment Statistics of the Ministry of Health, Social Services and Equality, from the National Health Service (SNS) portal and the SMS portal. To this end, the data envelopment analysis (DEA)-window method was used, since this extension of the basic DEA model allows to compare the efficiency of a small number of units over different years and analyze changes in efficiency over time. In addition, the model was complemented by smooth bootstrapping and a superefficiency analysis to improve the quality of the data interpretation. Four inputs were used (number of beds, number of operating rooms, personnel costs and operating costs), two undesirable outputs (average stay and rate of return) and three desirable outputs (weighted discharges, emergencies and surgical interventions). Results: The average level of inefficiency was 1.58% over the study period, with a good evolution between 2012 (3.53%) and 2014 (0.20%). This improvement was also reflected in the number of efficient hospitals that rose from two in 2012 to eight in 2014. Moreover, the slack levels detected were small. Conclusion: The management of the public hospitals analyzed was favorable, both regarding average level of efficiency and the number of hospitals qualified as efficient. However, the analysis revealed several ways to increase efficiency by reducing specific inputs and nondesirable outputs (mainly operating and personnel costs as well as average length of stay) while increasing desirable outputs (mostly the number of surgical interventions). To finish, specific policy measures are suggested to improve the performance of these hospitals.

Quality and technical efficiency do not evolve hand in hand in Spanish hospitals: Observational study with administrative data

Objective

Recent evidence on the Spanish National Health System (SNHS) reveals a considerable margin for hospital efficiency and quality improvement. However, those studies do not consider both dimensions together. This study aims at jointly studying both technical efficiency (TE) and quality, classifying the public SNHS hospitals according to their joint performance.

Methods

Stochastic frontier analysis is used to estimate TE and multilevel logistic regressions to build a low-quality composite measure (LQ), which considers in-hospital mortality and safety events. All hospitalizations discharged in Spain in 2003 and 2013, in 179 acute-care general hospitals, were studied. Four scenarios of resulting performance were built setting yearly medians as thresholds for the overall sample, and according to hospital-complexity strata.

Results

Overall, since 2003, median TE improved and LQ reduced -from TE₂₀₀₃:0.89 to TE₂₀₁₃:0.93 and, from LQ₂₀₀₃:42.6 to LQ₂₀₁₃:27.7 per 1,000 treated patients. The time estimated coefficient showed technical progress over the period. TE across hospitals showed scarce variability (CV₂₀₀₃:0.08 vs. CV₂₀₁₃:0.07), not so the rates of LQ (CV₂₀₀₃:0.64 vs. CV₂₀₁₃:0.76). No correlation was found between TE values and LQ rates. When jointly considering technical efficiency and quality, hospitals dealing with the highest clinical complexity showed the highest chance to be placed in optimal scenarios, also showing lesser variability between hospitals.

Conclusions

Efficiency and quality have improved in Spanish public hospitals. Not all hospitals experiencing improvements in efficiency equally improved their quality. The joint analysis of both dimensions allowed identifying those optimal hospitals according to this trade-off.

Estimating technical efficiency of Turkish hospitals: implications for hospital reform initiatives

Background

The Government of Turkey has initiated a series of major health reforms in 2003 with an objective of increasing access to health care services and improving efficiency of public and private hospitals. This study attempts to understand the technical efficiency of public and private hospitals in Turkey to better guide hospital reform.

Methods

We use data from 1079 public and private hospitals and translog stochastic production frontier was adopted to estimate technical inefficiency of hospitals.

Results

Results indicate that there is no statistically significant difference in the degree of inefficiency of hospitals by geographic location or its level of economic development. Efficiency scores vary significantly across hospital types with Ministry of Health (MoH) General Hospitals being the most efficient followed by MoH teaching hospitals. Better performance of MoH hospitals may be due to successful implementation of 2003 health reforms in Turkey, which intended to improve resource utilization within and across MoH hospitals. Among MoH hospital types, integrated county hospitals were the least efficient. Since the hospital outcome measure did not include the value of medical training, efficiency scores of university hospitals became relatively low. Wide variability of efficiency scores of private general hospitals implies the existence of both highly efficient and inefficient hospitals in the private sector.

Conclusions

Efficiency differences of various hospital types can be leveraged to guide future reforms by emphasizing the strengths of general hospitals and improving the referral system from county hospitals to general hospitals. Encouraging resource sharing across hospitals, as being done by the 2011 reforms, should further improve hospital efficiency. Promoting private hospitals may not necessarily be efficiency enhancing due to high variability of private hospitals in terms of efficiency scores. Similarly, implementation of common productivity standards and quality control measures are likely to improve hospital technical efficiency scores further.

The Determinants of the Technical Efficiency of Acute Inpatient Care in Canada

OBJECTIVE

To evaluate the technical efficiency of acute inpatient care at the pan-Canadian level and to explore the factors associated with inefficiency-why hospitals are not on their production frontier.

DATA SOURCES/STUDY SETTING

Canadian Management Information System (MIS) database (CMDB) and Discharge Abstract Database (DAD) for the fiscal year of 2012-2013.

STUDY DESIGN

We use a nonparametric approach (data envelopment analysis) applied to three peer groups (teaching, large, and medium hospitals, focusing on their acute inpatient care only). The double bootstrap procedure (Simar and Wilson 2007) is adopted in the regression.

DATA COLLECTION/EXTRACTION METHODS

Information on inpatient episodes of care (number and quality of outcomes) was extracted from the DAD. The cost of the inpatient care was extracted from the CMDB.

PRINCIPAL FINDINGS

On average, acute hospitals in Canada are operating at about 75 percent efficiency, and this could thus potentially increase their level of outcomes (quantity and quality) by addressing inefficiencies. In some cases, such as for teaching hospitals, the factors significantly correlated with efficiency scores were not related to management but to the social composition of the caseload. In contrast, for large and medium nonteaching hospitals, efficiency related more to the ability to discharge patients to postacute care facilities. The efficiency of medium hospitals is also positively related to treating more clinically noncomplex patients.

CONCLUSIONS

The main drivers of efficiency of acute inpatient care vary by hospital peer groups. Thus, the results provide different policy and managerial implications for teaching, large, and medium hospitals to achieve efficiency gains.

Association Between Medicare's Mandatory Hospital Value-Based Purchasing Program and Cost Inefficiency

BACKGROUND

The Patient Protection and Affordable Care Act instituted pay-for-performance programs, including Hospital Value-Based Purchasing (HVBP), designed to encourage hospital quality and efficiency.

OBJECTIVE AND METHOD

While these programs have been evaluated with respect to their implications for care quality and financial viability, this is the first study to assess the relationship between hospitals' cost inefficiency and their participation in the programs. We estimate a translog specification of a stochastic cost frontier with controls for participation in the HVBP program and clinical and outcome quality for California hospitals for 2012-2015.

RESULTS

The program-participation indicators' parameters imply that participants were more cost inefficient than their peers. 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 operating costs.

CONCLUSION

The estimated coefficients for the outcome quality variables suggest that future determination of HVBP payment adjustments, which will depend solely on mortality rates as measures of clinical care quality, may not only be aligned with increasing healthcare quality but also reducing healthcare costs.

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

Background: 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.

Methods: 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.

Results: 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.

Conclusion: 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.

Hospital Policy and Productivity - Evidence from German States

Total factor productivity (TFP) growth allows for additional healthcare services under restricted resources. We examine whether hospital policy can stimulate hospital TFP growth. We exploit variation across German federal states in the period 1993-2013. State governments decide on hospital capacity planning (number of hospitals, departments, and beds), ownership, medical students, and hospital investment funding. We show that TFP growth in German hospital care reflects quality improvements rather than increases in output volumes. Second-stage regression results indicate that reducing the length of stay is generally a proper way to foster TFP growth. The effects of other hospital policies depend on the reimbursement scheme: Under activity-based (German Diagnosis-related Group) hospital funding, scope-related policies (privatization and specialization) come with TFP growth. Under fixed daily rate funding, scale matters to TFP (hospital size and occupancy rates). Differences in capitalization in East and West Germany allow to show that deepening capital may enhance TFP growth if capital is scarce. We also show that there is less scope for hospital policies after large-scale restructurings of the hospital sector. Copyright © 2016 John Wiley & Sons, Ltd.

A methodological proposal to evaluate the cost of duration moral hazard in workplace accident insurance

The cost of duration moral hazard in workplace accident insurance has been amply explored by North-American scholars. Given the current context of financial constraints in public accounts, and particularly in the Social Security system, we feel that the issue merits inquiry in the case of Spain. The present research posits a methodological proposal using the econometric technique of stochastic frontiers, which allows us to break down the duration of work-related leave into what we term "economic days" and "medical days". Our calculations indicate that during the 9-year period spanning 2005-2013, the cost of sick leave amongst full-time salaried workers amounted to 6920 million Euros (in constant 2011 Euros). Of this total, and bearing in mind that "economic days" are those attributable to duration moral hazard, over 3000 million Euros might be linked to workplace absenteeism. It is on this figure where economic policy measures might prove more effective.

What Role Does Efficiency Play in Understanding the Relationship Between Cost and Quality in Physician Organizations?

BACKGROUND

The belief that there is inefficiency, or the potential to improve patient health at current levels of spending, is driving the push for greater value in health care. Previous studies demonstrate overuse of a narrow set of services, suggesting provider inefficiency, but existing studies neither quantify inefficiency more broadly nor assess its variation across physician organizations (POs).

DATA AND METHODS

We used data on quality of care and total cost of care from 129 California POs participating in a statewide value-based pay-for-performance program. We estimated a production function with quality as the output and cost as the input, using a stochastic frontier model, to develop a measure of relative efficiency for each PO. To validate the efficiency measure, we examined correlations of PO efficiency estimates with indicators representing overuse of services.

RESULTS

The estimated production function showed that PO quality was positively associated with costs, although there were diminishing marginal returns to spending. A certain minimum level of spending was associated with high quality even among efficient POs. Most strikingly, however, POs had substantial variation in efficiency, producing widely differing levels of quality for the same cost.

CONCLUSIONS

Differences among POs in the efficiency with which they produce quality suggest opportunities for improvements in care delivery that increase quality without increasing spending.

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.

Impact of the Local Public Hospital Reform on the Efficiency of Medium-Sized Hospitals in Japan: An Improved Slacks-Based Measure Data Envelopment Analysis Approach

OBJECTIVE

To assess the change in efficiency and total factor productivity (TFP) of the local public hospitals in Japan after the local public hospital reform launched in late 2007, which was aimed at improving the financial capability and operational efficiency of hospitals.

DATA SOURCES AND DATA COLLECTION

Secondary data were collected from the Ministry of Internal Affairs and Communications on 213 eligible medium-sized hospitals, each operating 100-400 beds from FY2006 to FY2011.

STUDY DESIGN

The improved slacks-based measure nonoriented data envelopment analysis models (Quasi-Max SBM nonoriented DEA models) were used to estimate dynamic efficiency score and Malmquist Index.

PRINCIPAL FINDINGS

The dynamic efficiency measure indicated an efficiency gain in the first several years of the reform and then was followed by a decrease. Malmquist Index analysis showed a significant decline in the TFP between 2006 and 2011. The financial improvement of medium-sized hospitals was not associated with enhancement of efficiency. Hospital efficiency was not significantly different among ownership structure and law-application system groups, but it was significantly affected by hospital location.

CONCLUSIONS

The results indicate a need for region-tailored health care policies and for a more comprehensive reform to overcome the systemic constraints that might contribute to the decline of the TFP.

Technical efficiency of nursing homes: do five-star quality ratings matter?

This study investigates associations between five-star quality ratings and technical efficiency of nursing homes. The sample consists of a balanced panel of 338 nursing homes in California from 2009 through 2013 and uses two-stage data envelopment (DEA) analysis. The first-stage applies an input oriented variable returns to scale DEA analysis. The second-stage uses a left censored random-effect Tobit regression model. The five-star quality ratings i.e., health inspections, quality measures, staffing available on the Nursing Home Compare website are divided into two categories: outcome and structure form of quality. Results show that quality measures ratings and health inspection ratings, used as outcome form of quality, are not associated with mean technical efficiency. These quality ratings, however, do affect the technical efficiency of a particular nursing home and hence alter the ranking of nursing homes based on efficiency scores. Staffing rating, categorized as a structural form of quality, is negatively associated with mean technical efficiency. These findings show that quality dimensions are associated with technical efficiency in different ways, suggesting that multiple dimensions of quality should be included in the efficiency analysis of nursing homes. They also suggest that patient care can be enhanced through investing more in improving care delivery rather than simply raising the number of staff per resident.

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.

Letters to the Editor

As part of marking Inquiry's 40th year of publication, we are introducing a new feature to the journal—a “Letters to the Editor” section. We invite interested readers to send their comments on research articles or opinion columns published in the journal. Letter topics may range from critiques of methods or models used in articles to presenting alternative views on subjects raised in opinion columns or in interpretations of research findings. Letters should be no longer than 750 words; Inquiry's editors reserve the right to edit the letters for clarity and length. Letters selected for publication will undergo our usual copyediting process; we cannot acknowledge receipt of letters that are not published. Submit letters to: Letters to the Editor, Inquiry, P.O. Box 25399, Rochester, NY 14625–0399.

Does decentralization influence efficiency of health units? A study of opinion and perception of health workers in Odisha

Background

Health systems in low and middle income countries are struggling to improve efficiency in the functioning of health units of which workforce is one of the most critical building blocks. In India, Rogi Kalyan Samiti (RKS) was established at every health unit as institutions of local decision making in order to improve productive efficiency and quality. Measuring efficiency of health units is a complex task. This study aimed at assessing the perception (opinion and satisfaction) of health workers about influence of RKS on improving efficiency of peripheral decision making health units (DMHU); examining differences between priority and non-priority set-ups; identifying predictors of satisfaction at work; and discussing suggestions to improve performance.

Methods

Following a cross-sectional, comparative study design, 130 health workers from 30 institutions were selected through a multi-stage stratified random sampling. A semi-structured questionnaire was administered to assess perception and opinion of health workers about influence of RKS on efficiency of decision making at local level, motivation and performance of staff, and availability of funds; improvement of quality of services, and coordination among co-workers; and participation of community in local decision making. Three districts with highest infant mortality rate (IMR), one each, from 3 zones of Odisha and 3 with lowest IMR were selected on the basis of IMR estimates of 2011. The former constituted priority districts (PD) and the latter, non-priority districts (NPD). Composite scores were developed and compared between PD and NPD. Adjusted linear regression was conducted to identify predictors of satisfaction at work.

Results

A majority of respondents felt that RKS was efficient in decision making that resulted in improvement of all critical parameters of health service delivery, including quality; this was significantly higher in PD. Further, higher proportion of respondents from PD was highly satisfied with the current set of provisions and manners of functioning of the sample health units. Active community engagement, participation of elected representatives, selection of a pro-active Chairman, and training to RKS members were suggested as the immediate priority action points for the state government. Mean scores differed significantly between PD and NPD with regard to: influence of RKS on individual-centric, organizational-centric and patient-centric performance, and the responsibilities to be entrusted with RKS. Absenteeism was strongly associated with satisfaction and local self-governance. Work-related factors, systemic factors, local accountability and patients’ involvement were found to be the key predictors of satisfaction of health workforce.

Conclusion

The understanding on quality improvement strategies was found to be very poor among the health workers. Tailor-made capacity building measures at district and sub-district levels could be critical to equip the peripheral health units to achieve the universal health coverage goals. Work environment, systemic factors and accountability need to be addressed on priority for retention of health workforce. The hypothesized link between efficient local decision making, perception of health workers about efficiency of health units and the health status of population needs further investigation.

Data Envelopment Analysis (DEA)

Measurement of efficiency of any organisation (e.g., hospital, bank, etc.) that uses multiple inputs and generates multiple outputs is complex and comparisons across units are difficult. Charnes and Cooper (1985) describe a non-parametric approach in such situations to measure efficiency and the technique is known as data envelopment analysis (DEA). This analysis method is basically a linear pro gramming-based technique used for measuring the relative performance of organisational units where the presence of multiple inputs and outputs makes comparisons difficult. It involves identification of units, which in relative sense use the inputs for the given outputs in the most optimal manner; DEA uses this information to construct efficiency frontiers over the data of available organisa tion units. This efficient frontier is used to calculate the efficiencies of the other organisation units that do not fall on the efficient frontier and provide informa tion on which units are not using inputs efficiently. The objective of this article is to introduce the technique and demonstrate it through an example to show how relative efficiencies can be determined and identify units that are relatively less efficient.

The determinants of efficiency in the Canadian health care system

In spite of the vast number of studies measuring economic efficiency in health care, there has been little take-up of this evidence by policy-makers to date. This study provides an illustration of how a system-level study drawing on best practice in empirical measurement of efficiency may be of practical use to health system decision makers and managers. We make use of the rich data available in Canada to undertake a robust two-stage data envelopment analysis to calculate efficiency at the regional (sub-provincial) level. Decisions about what the health system produces (the outcome to measure efficiency against) and what are the resources it has to produce that outcome were based on interviews and consultation with health system decision makers. Overall, we find large inefficiencies in the Canadian health care system, which could improve outcomes (here, measured as a reduction in treatable causes of death) by between 18 and 35% across our analyses. Also, we find that inefficiencies are the result of three main sets of factors that policy makers could pay attention to: management factors, such as hospital re-admissions; public health factors, such as obesity and smoking rates; and environmental factors such as the population’s average income.

Examining variations in hospital productivity in the English NHS

OBJECTIVES

Numerous papers have measured hospital efficiency, mainly using a technique known as data envelopment analysis (DEA). A shortcoming of this technique is that the number of outputs for each hospital generally outstrips the number of hospitals. In this paper, we propose an alternative approach, involving the use of explicit weights to combine diverse outputs into a single index, thereby avoiding the need for DEA.

METHODS

Hospital productivity is measured as the ratio of outputs to inputs. Outputs capture quantity and quality of care for hospital patients; inputs include staff, equipment, and capital resources applied to patient care. Ordinary least squares regression is used to analyse why output and productivity varies between hospitals. We assess whether results are sensitive to consideration of quality.

RESULTS

Hospital productivity varies substantially across hospitals but is highly correlated year on year. Allowing for quality has little impact on relative productivity. We find that productivity is lower in hospitals with greater financial autonomy, and where a large proportion of income derives from education, research and development, and training activities. Hospitals treating greater proportions of children or elderly patients also tend to be less productive.

CONCLUSIONS

We have set out a means of assessing hospital productivity that captures their multiple outputs and inputs. We find substantial variation in productivity among English hospitals, suggesting scope for productivity improvement.

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.

Technical efficiency of teaching hospitals in Iran: the use of Stochastic Frontier Analysis, 1999-2011

BACKGROUND

Hospitals are highly resource-dependent settings, which spend a large proportion of healthcare financial resources. The analysis of hospital efficiency can provide insight into how scarce resources are used to create health values. This study examines the Technical Efficiency (TE) of 12 teaching hospitals affiliated with Tehran University of Medical Sciences (TUMS) between 1999 and 2011.

METHODS

The Stochastic Frontier Analysis (SFA) method was applied to estimate the efficiency of TUMS hospitals. A best function, referred to as output and input parameters, was calculated for the hospitals. Number of medical doctors, nurses, and other personnel, active beds, and outpatient admissions were considered as the input variables and number of inpatient admissions as an output variable.

RESULTS

The mean level of TE was 59% (ranging from 22 to 81%). During the study period the efficiency increased from 61 to 71%. Outpatient admission, other personnel and medical doctors significantly and positively affected the production (P< 0.05). Concerning the Constant Return to Scale (CRS), an optimal production scale was found, implying that the productions of the hospitals were approximately constant.

CONCLUSION

Findings of this study show a remarkable waste of resources in the TUMS hospital during the decade considered. This warrants policy-makers and top management in TUMS to consider steps to improve the financial management of the university hospitals.

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.

Cost and technical efficiency of physician practices: a stochastic frontier approach using panel data

This is the first study to use stochastic frontier analysis to estimate both the technical and cost efficiency of physician practices. The analysis is based on panel data from 3,126 physician practices for the years 2006 through 2008. We specified the technical and cost frontiers as translog function, using the one-step approach of Battese and Coelli to detect factors that influence the efficiency of general practitioners and specialists. Variables that were not analyzed previously in this context (e.g., the degree of practice specialization) and a range of control variables such as a patients' case-mix were included in the estimation. Our results suggest that it is important to investigate both technical and cost efficiency, as results may depend on the type of efficiency analyzed. For example, the technical efficiency of group practices was significantly higher than that of solo practices, whereas the results for cost efficiency differed. This may be due to indivisibilities in expensive technical equipment, which can lead to different types of health care services being provided by different practice types (i.e., with group practices using more expensive inputs, leading to higher costs per case despite these practices being technically more efficient). Other practice characteristics such as participation in disease management programs show the same impact throughout both cost and technical efficiency: participation in disease management programs led to an increase in both, technical and cost efficiency, and may also have had positive effects on the quality of care. Future studies should take quality-related issues into account.

Truly inefficient or providing better quality of care? Analysing the relationship between risk-adjusted hospital costs and patients' health outcomes

Observed variation in hospital costs may be attributable to differences in patients' health outcomes. Previous studies have resorted to inherently incomplete outcome measures such as mortality or re-admission rates to assess this claim. This study makes use of a novel dataset of routinely collected patient-reported outcome measures (PROMs) linked to inpatient records to (i) access the degree to which cost variation is associated with variation in patients' health gain and (ii) explore how far judgement about hospital cost performance changes when health outcomes are accounted for. We use multilevel modelling to address the clustering of patients in providers and isolate unexplained cost variation. We find some evidence of a U-shaped relationship between risk-adjusted costs and outcomes for hip replacement surgery. For three other procedures (knee replacement, varicose vein and groin hernia surgery), the estimated relationship is sensitive to the choice of PROM instrument. We do not observe substantial changes in cost performance estimates when outcomes are explicitly accounted for.

Cost-efficiency in Medicaid long-term support services: the role of home and community based services

Growth in home and community based services (HCBS) has been implicated in rising long-term care expenditure in the Medicaid program. Its efficiency impact has not been tested. Using Stochastic Frontier Analysis (SFA) and panel data methods, we evaluated the cost efficiency of long-term support services (LTSS) provided by state Medicaid agencies and examined its association with intensity of HCBS use. We compared the efficiency of state funded HCBS programs with federal waiver programs. We found substantial variation in cost efficiency of LTSS programs by states, but all showed improvement over time related to increased HCBS use. Higher participation in federal waivers programs yielded additional improvements in cost-efficiency. Results indicate that increasing HCBS services targeted at “high need” population and developmentally disabled individuals would improve efficiency in LTSS delivery. These results reveal the importance of measuring and comparing efficiencies across Medicaid funded LTSS programs, as we introduce reforms in the LTSS delivery system. We recommend that Medicaid agencies invest in the development of improved data sources for the estimation of cost efficiencies of their programs.

Measuring the performance of Critical Access Hospitals in Missouri using data envelopment analysis

PURPOSE

Rural hospitals are critical for access to health care, and for their contributions to local economies. However, many rural hospitals, especially critical access hospitals (CAHs) need to strive for more efficiency for continued viability. Routinely evaluating their performance, and providing feedback to management and policy makers, is therefore important.

METHOD

Three measures of relative efficiency are estimated for CAHs in Missouri using an Input-oriented Data Envelopment Analysis with a variable returns to scale assumption and compared with the efficiency of other rural hospitals in Missouri using Banker's F-test. Using 30-day readmission rate as a measure of quality, CAHs are evaluated against efficiency-quality dimensions.

FINDINGS

CAHs in Missouri had a slight decline in average technical efficiency, but they had a slight gain in average cost efficiency in 2009 compared to 2006. More than half of the CAHs were neither economically nor technically efficient in both years. The relative efficiency of other rural hospitals was statistically higher than that of CAHs in Missouri.

CONCLUSIONS

This study validates the finding of relative inefficiency of CAHs compared to other hospitals paid under the Prospective Payment System at a state level (Missouri). However, with considerable variation in socioeconomic as well as health care access indicators across states, a relative efficiency frontier may not be the only relevant indicator of value for the evaluation of the performance of CAHs. Access to health care and the impact on the local economy provided by these CAHs to the community are also critical indicators for more comprehensive performance evaluation.

Efficacy of a numerical value of a fixed-effect estimator in stochastic frontier analysis as an indicator of hospital production structure

Background

The casemix-based payment system has been adopted in many countries, although it often needs complementary adjustment taking account of each hospital’s unique production structure such as teaching and research duties, and non-profit motives. It has been challenging to numerically evaluate the impact of such structural heterogeneity on production, separately of production inefficiency. The current study adopted stochastic frontier analysis and proposed a method to assess unique components of hospital production structures using a fixed-effect variable.

Methods

There were two stages of analyses in this study. In the first stage, we estimated the efficiency score from the hospital production function using a true fixed-effect model (TFEM) in stochastic frontier analysis. The use of a TFEM allowed us to differentiate the unobserved heterogeneity of individual hospitals as hospital-specific fixed effects. In the second stage, we regressed the obtained fixed-effect variable for structural components of hospitals to test whether the variable was explicitly related to the characteristics and local disadvantages of the hospitals.

Results

In the first analysis, the estimated efficiency score was approximately 0.6. The mean value of the fixed-effect estimator was 0.784, the standard deviation was 0.137, the range was between 0.437 and 1.212. The second-stage regression confirmed that the value of the fixed effect was significantly correlated with advanced technology and local conditions of the sample hospitals.

Conclusion

The obtained fixed-effect estimator may reflect hospitals’ unique structures of production, considering production inefficiency. The values of fixed-effect estimators can be used as evaluation tools to improve fairness in the reimbursement system for various functions of hospitals based on casemix classification.

Healthcare policy tools as determinants of health-system efficiency: evidence from the OECD

This paper assesses which policy-relevant characteristics of a healthcare system contribute to health-system efficiency. Health-system efficiency is measured using the stochastic frontier approach. Characteristics of the health system are included as determinants of efficiency. Data from 21 OECD countries from 1970 to 2008 are analysed. Results indicate that broader health-system structures, such as Beveridgian or Bismarckian financing arrangements or gatekeeping, are not significant determinants of efficiency. Significant contributors to efficiency are policy instruments that directly target patient behaviours, such as insurance coverage and cost sharing, and those that directly target physician behaviours, such as physician payment methods. From the perspective of the policymaker, changes in cost-sharing arrangements or physician remuneration are politically easier to implement than changes to the foundational financing structure of the system.

Managerial performance and cost efficiency of Japanese local public hospitals: a latent class stochastic frontier model

The paper explores the link between managerial performance and cost efficiency of 617 Japanese general local public hospitals in 1999-2007. Treating managerial performance as unobservable heterogeneity, the paper employs a panel data stochastic cost frontier model with latent classes. Financial parameters associated with better managerial performance are found to be positively significant in explaining the probability of belonging to the more efficient latent class. The analysis of latent class membership was consistent with the conjecture that unobservable technological heterogeneity reflected in the existence of the latent classes is related to managerial performance. The findings may support the cause for raising efficiency of Japanese local public hospitals by enhancing the quality of management.

Measuring Efficiency and Productivity Across Hospitals in the Regional Health Authority of Thessaly, in Greece

The aim of the article is to assess performance in seven homogenous specialty clinics across all National Health System (NHS) hospitals in the Regional Health Authority of Thessaly (RHAT), over the period 2002–2006. Data Envelopment Analysis by using the Malmquist Productivity Index and its decompositions has been applied in order to measure the technical efficiency and productivity. Clinics were considered to transform inputs labour (medical and nursing staff) and capital (hospital beds) into health services, approximated by the number of in-patient discharges and in-patient days, used as outputs. The model is output-oriented and assumes variable return to scale. Data were collected from hospitals’ records. Overall productivity progressed in all clinics. Technical change progressed except the general medicine clinics. Technical efficiency regressed in four clinics. Diachronically the size of the clinics influences the overall effects on hospital performance and the maximum level of outputs produced has not been achieved using the given labour and capital inputs, except orthopaedic clinics. Homogeneity in assessing hospitals’ performance provides evidence on the efficiency and productivity gains among clinics and suggests improvements in those which appear inefficient. The difficult economic situation Greece is facing nowadays makes the assessment of NHS hospitals’ performance a priority in the decision-making.

How costly is hospital quality? A revealed-preference approach

We analyze the cost of quality improvement in hospitals, dealing with two challenges. Hospital quality is multidimensional and hard to measure, while unobserved productivity may influence quality supply. We infer the quality of hospitals in Los Angeles from patient choices. We then incorporate ‘revealed quality’ into a cost function, instrumenting with hospital demand. We find that revealed quality differentiates hospitals, but is not strongly correlated with clinical quality. Revealed quality is quite costly, and tends to increase with hospital productivity. Thus, non-clinical aspects of the hospital experience (perhaps including patient amenities) play important roles in hospital demand, competition, and costs.