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The effect of activity-based financing on hospital efficiency: A panel data analysis of DEA efficiency scores 1992-2000

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Author Info

  • Biørn, Erik

    ()
    (Department of Economics)

  • Hagen, Terje P.

    ()
    (Institute of Health Management and Health Economics)

  • Iversen, Tor

    ()
    (Institute of Health Management and Health Economics)

  • Magnussen, Jon

    (SINTEF Unimed Health Services Research)

Abstract

Activity-based financing (ABF) was implemented in the Norwegian hospital sector from 1 July 1997. A fraction (30 to 50 per cent) of the block grant from the state to the county councils has been replaced by a matching grant depending upon the number and composition of hospital treatments. As a result of the reform, the majority of county councils have introduced activity-based contracts with their hospitals. This paper studies the effect of activity-based funding on hospital efficiency. We predict that hospital efficiency will increase because the benefit from cost-reducing efforts in terms of number of treated patients is increased under ABF compared with global budgets. The prediction is tested using a panel data set from the period 1992-2000. Efficiency indicators are estimated by means of data envelopment analysis (DEA) with multiple inputs and outputs. Using a variety of econometric methods, we find that the introduction of ABF has improved efficiency when measured as technical efficiency according to DEA analysis. Contrary to our prediction, the result is less uniform with respect to the effect on cost-efficiency. We suggest several reasons why this prediction fails. Keywords are poor information of costs, production-oriented drive, tight factor markets and soft budget constraints.

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Bibliographic Info

Paper provided by Oslo University, Health Economics Research Programme in its series HERO On line Working Paper Series with number 2002:8.

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Length: 42 pages
Date of creation: 29 Jun 2009
Date of revision:
Handle: RePEc:hhs:oslohe:2002_008

Contact details of provider:
Postal: HERO / Institute of Health Management and Health Economics P.O. Box 1089 Blindern, N-0317 Oslo, Norway
Phone: 2307 5309
Fax: 2307 5310
Email:
Web page: http://www.hero.uio.no/eng.html
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Keywords: Public hospitals; financing; efficiency; DEA-scores; panel data; Norway;

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References

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Citations

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Cited by:
  1. Carlsen, Fredrik & Kaarbøe, Oddvar, 2009. "Norwegian priority guidelines: Estimating the distributional implications across age, gender and SES," Working Papers in Economics 08/09, University of Bergen, Department of Economics.
  2. Janueleviciute, Jurgita & Askildsen, Jan Erik & Kaarbøe, Oddvar & Siciliani, Luigi & Sutton, Matt, 2013. "How Do Hospitals Respond To Price Changes?Evidence From Norway," Working Papers in Economics 15/12, University of Bergen, Department of Economics.
  3. Oliver Tiemann & Jonas Schreyögg, 2012. "Changes in hospital efficiency after privatization," Health Care Management Science, Springer, vol. 15(4), pages 310-326, December.
  4. Magnussen, Jon & Hagen, Terje P. & Kaarbøe, Oddvar M., 2006. "Centralized or decentralized? A case study of Norwegian hospital reform," Working Papers in Economics 02/06, University of Bergen, Department of Economics.
  5. Biorn, Erik & Hagen, Terje P. & Iversen, Tor & Magnussen, Jon, 2006. "Heterogeneity in Hospitals' Responses to a Financial Reform: A Random Coefficient Analysis of The Impact of Activity-Based Financing on Efficiency," MPRA Paper 8169, University Library of Munich, Germany.
  6. Hallsteinli, Vidar & Magnussen, Jon & Kittelsen, Sverre A.C., 2009. "Productivity growth in Norwegian psychiatric outpatient clinics A panel data analysis of the period 1996-2001," HERO On line Working Paper Series 2003:9, Oslo University, Health Economics Research Programme.
  7. Philippe K. Widmer, 2011. "Does prospective payment increase hospital (in)efficiency? Evidence from the Swiss hospital sector," ECON - Working Papers 053, Department of Economics - University of Zurich.
  8. Helmut Herwartz & Christoph Strumann, 2012. "On the effect of prospective payment on local hospital competition in Germany," Health Care Management Science, Springer, vol. 15(1), pages 48-62, March.
  9. H. Chowdhury & V. Zelenyuk & W. Wodchis & A. Laporte, 2010. "Efficiency and Technological Change in Health Care Services in Ontario," CEPA Working Papers Series WP082010, School of Economics, University of Queensland, Australia.
  10. R. Amy Puenpatom & Robert Rosenman, 2006. "Efficiency of Thai provincial public hospitals after the introduction of National Health Insurance Program," Working Papers 2006-2, School of Economic Sciences, Washington State University.
  11. Anni Ankjær-Jensen & Pernille Rosling & Lone Bilde, 2006. "Variable prospective financing in the Danish hospital sector and the development of a Danish case-mix system," Health Care Management Science, Springer, vol. 9(3), pages 259-268, August.

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