Technical efficiency and economies of diversification in health care

In national health services, where there is a tendency towards a lack of resources and a continuous increase in demand, it is necessary to implement decisions that promote efficiency. In this paper we focus on potential diversification economies as a strategy to increase efficiency levels. We evaluate the change in efficiency in Catalan hospitals between 1987 and 1992, and analyse the presence of possible diversification economies in each hospital. We use Data Envelopment Analysis, which does not need information on either input or output prices. The results are that the majority of hospitals could increase their efficiency and reduce their costs by diversification to the output-mix offered. Potential productivity gains are between 29% and 46%.