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Cost inefficiency and hospital health outcomes

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Author Info
Niccie L. McKay (Department of Health Services Research, Management and Policy, University of Florida, Gainesville, FL, USA)
Mary E. Deily (Department of Economics, Lehigh University, Bethlehem, PA, USA)
Abstract

This study explores the association between cost inefficiency and health outcomes in a national sample of acute-care hospitals in the US over the period 1999-2001, with health outcomes being measured by both mortality and complications rates. The empirical analysis examines health outcomes as a function of cost inefficiency and other determinants of outcomes, using stochastic frontier analysis to obtain hospital cost inefficiency scores. The results showed no systematic pattern of association between cost inefficiency and hospital health outcomes; the basic results were unchanged regardless of whether cost inefficiency was measured with or without using instrumental variables. The analysis also indicated, however, that the association between cost inefficiency and health outcomes may vary substantially across geographical regions. The study highlights the importance of distinguishing between 'good' costs that reflect the efficient use of resources and 'bad' costs that stem from waste and other forms of inefficiency. In particular, the study's results suggest that hospital programs focused on reducing cost inefficiency are unlikely to be associated with worsened hospital-level mortality or complications rates, while, on the other hand, across-the-board reductions in cost could well have adverse consequences on health outcomes by reducing efficient as well as inefficient costs. Copyright © 2007 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/hec.1299
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Publisher Info
Article provided by John Wiley & Sons, Ltd. in its journal Health Economics.

Volume (Year): 17 (2008)
Issue (Month): 7 ()
Pages: 833-848
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Handle: RePEc:wly:hlthec:v:17:y:2008:i:7:p:833-848

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Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/5749

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  1. Jondrow, James & Knox Lovell, C. A. & Materov, Ivan S. & Schmidt, Peter, 1982. "On the estimation of technical inefficiency in the stochastic frontier production function model," Journal of Econometrics, Elsevier, vol. 19(2-3), pages 233-238, August. [Downloadable!] (restricted)
  2. Mary E. Deily & Niccie L. McKay, 2006. "Cost inefficiency and mortality rates in Florida hospitals," Health Economics, John Wiley & Sons, Ltd., vol. 15(4), pages 419-431. [Downloadable!]
  3. Andrew Street, 2003. "How much confidence should we place in efficiency estimates?," Health Economics, John Wiley & Sons, Ltd., vol. 12(11), pages 895-907. [Downloadable!]
  4. Newhouse, Joseph P., 1994. "Frontier estimation: How useful a tool for health economics?," Journal of Health Economics, Elsevier, vol. 13(3), pages 317-322, October. [Downloadable!] (restricted)
  5. Grannemann, Thomas W. & Brown, Randall S. & Pauly, Mark V., 1986. "Estimating hospital costs : A multiple-output analysis," Journal of Health Economics, Elsevier, vol. 5(2), pages 107-127, June. [Downloadable!] (restricted)
  6. Zuckerman, Stephen & Hadley, Jack & Iezzoni, Lisa, 1994. "Measuring hospital efficiency with frontier cost functions," Journal of Health Economics, Elsevier, vol. 13(3), pages 255-280, October. [Downloadable!] (restricted)
  7. Wagstaff, Adam, 1989. "Estimating Efficiency in the Hospital Sector: A Comparison of Three Statistical Cost Frontier Models," Applied Economics, Taylor and Francis Journals, vol. 21(5), pages 659-72, May.
  8. Kathleen Carey & James F. Burgess, 1999. "On measuring the hospital cost|quality trade-off," Health Economics, John Wiley & Sons, Ltd., vol. 8(6), pages 509-520.
  9. Skinner, Jonathan, 1994. "What do stochastic frontier cost functions tell us about inefficiency?," Journal of Health Economics, Elsevier, vol. 13(3), pages 323-328, October. [Downloadable!] (restricted)
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