Evaluating managerial efficiency of Veterans Administration medical centers using Data Envelopment Analysis

This study applied the methodology of Data Envelopment Analysis (DEA) to the set of VA medical centers to evaluate their relative managerial efficiencies. Each VAMC was viewed as a producer of multiple outputs and a consumer of multiple inputs. DEA uses linear programming to identify resources that were underutilized and services that were inefficiently produced. Managerial strategies based on the dual variables were constructed to indicate the manner in which inefficient VAMCs may be made efficient. The analysis showed that relative inefficiency existed in about one third of the VAMCs nationwide. Elimination of this inefficiency would save the VA over $300 million annually on personnel, equipment, drugs, and supplies, without reducing the level of services provided. A subsequent analysis of co-variance revealed that VAMCs affiliated with a university were generally less efficient than those without such an affiliation. A similar finding was obtained for larger VAMCs relative to smaller medical centers. In neither case, however, should these results be construed to imply that VAMCs should terminate their university affiliations or that VAMCs should be made smaller since factors other than relative efficiency are clearly as or more important in such decisions.