The primary objective of this study is to assess whether systematic differences in inefficiency are associated with hospital membership in different types of systems. We employed the Battese/Coelli simultaneous stochastic frontier analysis (SFA) technique to estimate hospital cost inefficiency. Mean estimated inefficiency was 8.42%. Membership in different types of systems was related to estimated cost inefficiency (p < .05). Compared to hospitals that were members of centralized health systems, membership in centralized physician/insurance or decentralized systems was associated with decreased inefficiency; membership in independent systems was associated with increased inefficiency.
References
1.
AlexanderJ.LeeH. Shoou-YihBazzoliG., 2003. Governance Forms in Health Systems and Health Networks. Health Care Management Review28: 228–242.
2.
BatteseG.CoelliT., 1995. A Model for Technical Inefficiency Effects in a Stochastic Frontier Production Function for Panel Data. Empirical Economics20: 325–332.
3.
BatteseG.CorraG., 1977. Estimation of a Production Frontier Model: With Application to the Pastoral Zone of Eastern Australia. Australian Journal of Agricultural Economics21: 169–179.
4.
BazzoliG.ShortellS.DubbsN.ChanC.KralovecP., 1999. A Taxonomy of Health Networks and Systems: Bringing Order out of Chaos. Health Services Research33: 1683–1717.
5.
BazzoliG.ChanB.ShortellS.D'AunnoT., 2000. The Financial Performance of Hospitals Belonging to Health Networks and Systems. Inquiry37: 234–252.
6.
BazzoliG.ShortellS.CilibertoF.KralovecP.DubbsN., 2001. Tracking the Changing Provider Landscape: Implications for Health Policy and Practice. Health Affairs20: 188–196.
7.
CareyK.2003. Hospital Cost Efficiency and System Membership. Inquiry40 (1): 25–38.
8.
CoelliT.1996. A Guide to FRONTIER Version 4.1: A Computer Program for Stochastic Frontier Production and Cost Function Estimation. Centre for Efficiency and Productivity Analysis Working Paper 96/07. Armidale.
9.
CoelliT.RaoD.BatteeseG., 1999. An Introduction to Efficiency and Productivity Analysis. Boston: Kluwer Academic Publishers.
10.
ConradD. C.ShortellS. M., 1996. Integrated Health Systems: Promise and Performance. Frontiers in Health Services Management13: 3–40.
11.
DorA.1994. Non-Minimum Cost Functions and the Stochastic Frontier: On Applications to Health Care Providers. Journal of Health Economics13 (3): 329–334.
12.
DorA.FarleyD., 1996. Payment Source and the Cost of Hospital Care: Evidence from a Multiproduct Cost Function with Multiple Payers. Journal of Health Economics15: 1–22.
13.
ErmannD.GabelJ., 1985. The Changing Face of American Health Care: Multihospital Systems, Emergency Centers, and Surgery Centers. Medical Care23: 401–420.
14.
FollandS.HoflerR., 2001. How Reliable are Hospital Efficiency Estimates? Exploiting the Dual to Homothetic Production. Health Economics10: 683–698.
15.
GaskinD. J.HadleyJ., 1997. The Impact of HMO Penetration on the Rate of Hospital Cost Inflation. Inquiry34: 205–216.
16.
GrannemannT.BrownR.PaulyM., 1986. Estimating Hospital Costs: A Multiple-Output Analysis. Journal of Health Economics5: 107–127.
17.
GreeneW.1994. The Econometric Approach to Inefficiency Analysis. In The Measurement of Productive Efficiency, FriedH.LovellC.SchmidtS., eds. New York: Oxford University Press.
18.
GreeneW.2003. Econometric Analysis, 5th ed.Upper Saddle River, N.J.: Prentice-Hall, Inc.
19.
GreeneW.2004. Distinguishing Between Heterogeneity and Inefficiency: Stochastic Frontier Analysis of the WHO Panel Data on National Health Care Systems. Health Economics13: 959–980.
20.
HaigeJ.AikenF., 1969. Routine Technology, Social Structure and Organizational Goals. Administrative Science Quarterly14: 366–377.
21.
HjalmarssonL.KumbhakarS.HeshmatiA., 1996. DEA, DFA, and SFA: A Comparison. Journal of Productivity Analysis7: 303–328.
22.
Institute of Medicine. 1986. For-profit Enterprise in Health Care. Washington, D.C.: National Academy Press.
23.
JondrowJ.LovellK.MaterovI.SchmidtP., 1982. On the Estimation of Technical Inefficiency in the Stochastic Frontier Production Function Model. Journal of Econometrics19: 233–238.
24.
KooremanP.1994. Data Envelopment Analysis and Parametric Frontier Estimation: Complementary Tools. Journal of Health Economics13 (3): 345–346.
25.
KumbhakarS.LovellC., 2000. Stochastic Frontier Analysis. Cambridge: Cambridge University Press.
26.
LinnaM.1998. Measuring Hospital Cost Efficiency With Panel Data Models. Health Economics7: 415–427.
27.
LovellC.1994. Production Frontiers and Productive Efficiency. In The Measurement of Productive Efficiency, FriedH.LovellC.SchmidtS., eds. New York: Oxford University Press.
28.
Medicare Payment Advisory Commission (MedPAC). 2005. Report to the Congress: Selected Medicare Payment Issues. Washington, D.C.: MedPAC.
29.
MenkeT. J.1997. The Effect of Chain Membership on Hospital Costs. Health Services Research32: 177–196.
30.
NewhouseJ.1994. Frontier Estimation: How Useful a Tool for Health Economics?Journal of Health Economics13: 317–322.
31.
OsterS. M.1990. Modern Competitive Analysis. New York: Oxford University Press.
32.
OzcanY.LukeR.HakseverC., 1992. Ownership and Organizational Performance: A Comparison of Technical Efficiency Across Hospital Types. Medical Care30: 781–794.
33.
PfefferJ.SalancikG., 1978. The External Control of Organizations: A Resource Dependence Perspective. New York: Harper & Row.
34.
PittM.LeeM., 1981. The Measurement and Sources of Technical Inefficiency in the Indonesian Weaving Industry. Journal of Development Economics9: 43–64.
35.
RobinsonJ.1997. Physician-Hospital Integration and the Economic Reality of the Firm. Medical Care Research and Review54 (1): 3–24.
36.
RoskoM. D.1999. Impact of Internal and External Environmental Pressures on Hospital Inefficiency. Health Care Management Science2 (Summer): 64–78.
37.
RoskoM. D.2001a. Impact of HMO Penetration and Other Environmental Factors on Hospital X-Inefficiency. Medical Care Research and Review58: 430–454.
38.
RoskoM. D.2001b. Cost Efficiency of U.S. Hospitals: A Stochastic Frontier Approach. Health Economics10: 539–551.
RoskoM.CarpenterC., 1994. The Impact of Intra-DRG Severity of Illness on Hospital Profitability: Implications for Payment Reform. Journal of Health Politics, Policy and Law19: 729–751.
41.
RoskoM. D.MutterR., In press. Stochastic Frontier Analysis of Hospital Inefficiency: A Review of Empirical Issues and an Assessment of Robustness. Medical Care Research and Review forthcoming.
42.
RoskoM.ProencaJ., 2005. Impact of Network and System Use on Hospital X-Inefficiency. Health Care Management Review30 (1): 69–79.
43.
ShortellS.1988. The Evolution of Hospital Systems: Unfilled Promises and Self-Fulfilling Prophecies. Medical Care Research and Review45 (2): 177–214.
44.
SkinnerJ.1994. What Do Stochastic Frontier Cost Functions Tell Us About Inefficiency?Journal of Health Economics13 (3): 323–328.
45.
SloanF. A.2000. Not-for-Profit Ownership and Hospital Behavior. In Handbook of Health Economics, CulyerA. J.NewhouseJ. P., eds. Amsterdam: Elsevier.
46.
StevensonR.1980. Likelihood Functions for Generalized Stochastic Frontier Estimation. Journal of Economics13: 58–66.
47.
StreetA.2003. How Much Confidence Should We Place in Efficiency Estimates?Health Economics12: 895–907.
48.
TaylorD.WhellanD.SloanF., 1999. Effects of Admission to a Teaching Hospital on the Cost and Quality of Care for Medicare Beneficiaries. New England Journal of Medicine340: 293–302.
49.
TimmerC.1971. Using a Probabilistic Frontier Production Function to Measure Technical Efficiency. Journal of Political Economy79: 776–794.
50.
VitalianoD. F.TorenM., 1996. Hospital Cost and Efficiency in a Regime of Stringent Regulation. Eastern Economic Journal22: 161–173.
51.
WangH.SchmidtP., 2002. One-step and Two-step Estimation of the Effects of Exogenous Variables on Technical Efficiency Levels. Journal of Productivity Analysis18: 129–144.
52.
WilliamsonO. A.1975. Markets and Hierarchies: Analysis and Antitrust Implications. New York: Free Press.
53.
WilliamsonO. A.1991. The Nature of the Firm: Origins, Evolution, and Development. New York: Oxford University Press.
54.
ZuckermanS.HadleyJ.IezzoniL., 1994. Measuring Hospital Efficiency with Frontier Cost Functions. Journal of Health Economics13: 255–280.
