Efficiency improvements of public hospitals under a capitation payment scheme

In a context of cost containment and demands for better quality in public health care, payment systems are used as an instrument to promote efficiency improvements in service providers. Andalusia has adopted an original type of risk-adjusted capitation payment mechanism to reimburse public hospitals. This paper presents the main characteristics of the reimbursement mechanism of the Andalusian Health Service highlighting some differences with the mechanisms adopted in other parts of Europe. The paper also explores the evolution of the efficiency and quality of the hospitals after its implementation using the Malmquist index. Results indicate that hospitals have slightly improved their efficiency, particularly urban hospitals, and these improvements are not significantly related to a negative evolution of quality. However, it is not possible to assert to what extent, improvements are the consequence of the new payment system. The organisation of the Servicio Andaluz de Salud and the limited competition between hospitals reduce the effectiveness of the reform.