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Measuring Hospital Efficiency through Data Envelopment Analysis when Policy-makers' Preferences Matter. An Application to a Sample of Italian NHS Hospitals

  • Rebba Vincenzo
  • Rizzi Dino

In this paper we show how both the choice of specific constraints on output weights (in accordance with health care policy-makers' preferences) and the consideration of exogenous variables outside the control of hospital management (and linked to past policy-makers' decisions) can affect the measurement of hospital technical efficiency using the "Data Envelopment Analysis" (DEA). Considering these issues, the DEA method is applied to measure the efficiency of 85 (public and private) hospitals in Veneto, a Northern region of Italy. The empirical analysis allows us to verify the role of weight restrictions and of demand in measuring the efficiency of hospitals operating within a National Health Service (NHS). We find that the imposition of a lower bound on the virtual weight of acute care discharges weighted by case-mix (in order to consider policy-maker objectives) reduces average hospital efficiency. Moreover, we show that, in many cases, low efficiency scores are attributable to external factors, which are not fully controlled by the hospital management. Finally, we show that accredited private hospitals exhibit a higher level of total inefficiency than public ones: for-profit hospitals are mostly characterised by scale inefficiency, while non-profit hospitals are affected by different sources of inefficiency. Most of the hospitals in Veneto are too small in relation to their output levels (i.e. are characterised by IRS) and this problem of scale inefficiency characterises mainly the accredited private hospitals. This result indicates that private hospitals are considered important within regional health care planning as providers of supplementary services integrating public supply, even though they operate at a sub-optimal scale.

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Article provided by Società editrice il Mulino in its journal Politica economica - Journal of Economic Policy (PEJEP).

Volume (Year): (2007)
Issue (Month): 3 ()
Pages: 233-258

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Handle: RePEc:mul:je8794:doi:10.1429/25710:y:2007:i:3:p:233-258
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  1. Bruce Hollingsworth & P.J. Dawson & N. Maniadakis, 1999. "Efficiency measurement of health care: a review of non‐parametric methods and applications," Health Care Management Science, Springer, vol. 2(3), pages 161-172, July.
  2. Liam O'Neill, 1998. "Multifactor efficiency in Data Envelopment Analysis with an application to urban hospitals," Health Care Management Science, Springer, vol. 1(1), pages 19-27, September.
  3. R. D. Banker & A. Charnes & W. W. Cooper, 1984. "Some Models for Estimating Technical and Scale Inefficiencies in Data Envelopment Analysis," Management Science, INFORMS, vol. 30(9), pages 1078-1092, September.
  4. L. Steinmann & P. Zweifel, 2003. "On the (in)efficiency of Swiss hospitals," Applied Economics, Taylor & Francis Journals, vol. 35(3), pages 361-370.
  5. Charnes, A. & Cooper, W. W. & Rhodes, E., 1978. "Measuring the efficiency of decision making units," European Journal of Operational Research, Elsevier, vol. 2(6), pages 429-444, November.
  6. Juan Ventura & Eduardo GonzáLez & Ana Cárcaba, 2004. "Efficiency and Program-Contract Bargaining in Spanish Public Hospitals," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 75(4), pages 549-573, December.
  7. Rajiv D. Banker & Robert F. Conrad & Robert P. Strauss, 1986. "A Comparative Application of Data Envelopment Analysis and Translog Methods: An Illustrative Study of Hospital Production," Management Science, INFORMS, vol. 32(1), pages 30-44, January.
  8. Puig-Junoy, Jaume, 2000. "Partitioning input cost efficiency into its allocative and technical components: an empirical DEA application to hospitals," Socio-Economic Planning Sciences, Elsevier, vol. 34(3), pages 199-218, September.
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