An examination of health care efficiency in Canada: a two-stage semi-parametric approach

Using data envelopment analysis, we examine the efficiency of Canada's universal health care system by considering a set of labour (physicians) and capital (beds) inputs, which produce a level of care (measured in terms of health quality and quantity) in a given region. Data from 2013-2015 were collected from the Canadian Institute for Health Information regarding inputs and from the Canadian Community Health Survey and Statistics Canada regarding our output variables, health utility (quality) and life expectancy (quantity). We posit that variation in efficiency scores across Canada is the result of regional heterogeneity regarding socioeconomic and demographic disparities. Regressing efficiency scores on such covariates suggests that regional unemployment and an older population are quite impactful and associated with less efficient health care production. Moreover, regional variation indicates the Atlantic provinces (Newfoundland, Prince Edward Island, Nova Scotia, New Brunswick) are quite inefficient, have poorer economic prospects, and tend to have an older population than the rest of Canada. Oaxaca-Blinder decompositions suggest that the latter two factors explain about one-third of this efficiency gap. Based on our two-stage semi-parametric analysis, we recommend Canada adjust their transfer payments to reflect these disparities, thereby potentially reducing inequality in regional efficiency.