Making incentives work: Hospital organisation and performance

Abstract

Aims:

In 1997, financing of Norwegian hospitals was changed to a combination of block grants and activity-based reimbursements. Since then, many hospitals have also reorganised their internal structures, for instance by implementing activity-based budgets at the departmental level. The purpose of this study is to investigate the impact of departmental activity-based budgets on overall hospital productivity and unit costs.

Methods:

The analysis is based on register data on hospital admissions and hospital input factors, along with survey data on internal organisation of hospitals. Fixed-effects regression models are applied for the analysis.

Results:

The main results indicate that hospitals with departmental activity-based budgets and department authority have higher productivity. The effect on unit costs is insignificant.

Conclusions:

The positive effect of the departmental activity-based budgets and departmental authority on productivity without increase in costs may indicate that providing incentives at lower hospital levels such as departments could be a useful tool for increasing overall hospital productivity and cost efficiency.