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Cost inefficiency in Washington hospitals: a stochastic frontier approach using panel data
1Indiana University, Bloomington 47405, USA.
Health Care Management Science
|June 8, 2001
Summary
Washington State hospitals show significant inefficiency, with the average facility operating at only 67% efficiency. Factors like casemix, bed count, for-profit status, and Medicare patient days influence hospital efficiency.
Area of Science:
- Health Economics
- Hospital Management
- Econometrics
Background:
- Hospital efficiency is a critical concern for healthcare systems.
- Understanding factors influencing hospital cost efficiency is essential for resource allocation.
- Previous studies have used various models to assess healthcare provider efficiency.
Purpose of the Study:
- To analyze the cost efficiency of Washington State hospitals.
- To identify key determinants of hospital inefficiency.
- To compare the performance of generalized Leontief and translog cost functions.
Main Methods:
- Stochastic frontier panel data model.
- Generalized Leontief cost function specified.
- One-stage FGLS estimation procedure used to model inefficiency effects.
- Hausman test to compare functional forms.
Main Results:
- Hospitals with higher casemix indices and more beds were found to be less efficient.
- For-profit hospitals and those with a higher proportion of Medicare patient days demonstrated greater efficiency.
- The average hospital achieved only 67% of the efficiency of the most efficient hospital in the sample.
Conclusions:
- Significant variations in hospital cost efficiency exist within Washington State.
- Casemix, hospital size, ownership status, and payer mix are significant drivers of hospital efficiency.
- The generalized Leontief function and one-stage FGLS estimation provided valuable insights into hospital cost dynamics.
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