Cost efficiency in primary care contracting: a stochastic frontier cost function approach

The principal aim of this paper is to estimate a stochastic frontier cost function and an inefficiency effects model in the analysis of the primary health-care services purchased by the public authority and supplied by 180 providers in 1996 in Catalonia. The evidence from our sample does not support the premise that contracting out has helped improve purchasing cost efficiency in primary care. Inefficient purchasing cost was observed in the component of this purchasing cost explicitly included in the contract between purchaser and provider. There were no observable incentives for the contracted-out primary health-care teams to minimise prescription costs, which were not explicitly included in the contracting system.