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Stochastic Frontier Estimation Of Cost Models Within The Hospital


  • W. David Bradford
  • Andrew N. Kleit
  • Marie A. Krousel-Wood
  • Richard N. Re


Assessing the impact of new technologies on health care costs is an important research area. This paper evaluates two technologies used to treat coronary artery disease. We estimate two separate stochastic frontier models - one for balloon angioplasty patients and one for cardiac bypass surgery patient - using data taken from detailed chart and cost files of a large urban hospital. Cost estimates for the two technologies are purged of inefficiency so that forecasts of the cost consequences of technology shift can be based on "best-practice" production techniques. Learning behavior, physician effects, and patient clinical characteristics are also taken into account. We find that there are potential cost savings associated with making angioplasty a more perfect substitute for bypass surgery, as well as current inefficiency in production. © 2001 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology

Suggested Citation

  • W. David Bradford & Andrew N. Kleit & Marie A. Krousel-Wood & Richard N. Re, 2001. "Stochastic Frontier Estimation Of Cost Models Within The Hospital," The Review of Economics and Statistics, MIT Press, vol. 83(2), pages 302-309, May.
  • Handle: RePEc:tpr:restat:v:83:y:2001:i:2:p:302-309

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    Cited by:

    1. Nils Gutacker & Chris Bojke & Silvio Daidone & Nancy J. Devlin & David Parkin & Andrew Street, 2013. "Truly Inefficient Or Providing Better Quality Of Care? Analysing The Relationship Between Risk‐Adjusted Hospital Costs And Patients' Health Outcomes," Health Economics, John Wiley & Sons, Ltd., vol. 22(8), pages 931-947, August.
    2. Maria Vrachioli & Spiro E. Stefanou & Vangelis Tzouvelekas, 2021. "Impact Evaluation of Alternative Irrigation Technology in Crete: Correcting for Selectivity Bias," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 79(3), pages 551-574, July.
    3. Boris E. Bravo‐Ureta & Mario González‐Flores & William Greene & Daniel Solís, 2021. "Technology and Technical Efficiency Change: Evidence from a Difference in Differences Selectivity Corrected Stochastic Production Frontier Model," American Journal of Agricultural Economics, John Wiley & Sons, vol. 103(1), pages 362-385, January.
    4. Mehdi Farsi, 2008. "The temporal variation of cost-efficiency in Switzerland’s hospitals: an application of mixed models," Journal of Productivity Analysis, Springer, vol. 30(2), pages 155-168, October.
    5. Carine Milcent, 2017. "Premier bilan de la T2A sur la variabilité des coûts hospitaliers," PSE Working Papers halshs-01649554, HAL.
    6. Daidone, Silvio & Street, Andrew, 2013. "How much should be paid for specialised treatment?," Social Science & Medicine, Elsevier, vol. 84(C), pages 110-118.
    7. Carine Milcent, 2017. "Premier bilan de la tarification à l’activité (T2A) sur la variabilité des coûts hospitaliers," PSE-Ecole d'économie de Paris (Postprint) halshs-01522581, HAL.
    8. Andrew Street & Conrad Kobel & Thomas Renaud & Josselin Thuilliez & ON BEHALF OF THE EURODRG GROUP, 2012. "How Well Do Diagnosis‐Related Groups Explain Variations In Costs Or Length Of Stay Among Patients And Across Hospitals? Methods For Analysing Routine Patient Data," Health Economics, John Wiley & Sons, Ltd., vol. 21(S2), pages 6-18, August.
    9. William Greene, 2010. "A stochastic frontier model with correction for sample selection," Journal of Productivity Analysis, Springer, vol. 34(1), pages 15-24, August.
    10. Gutacker, Nils & Harris, Anthony & Brennan, David & Hollingsworth, Bruce, 2015. "The determinants of dentists' productivity and the measurement of output," Social Science & Medicine, Elsevier, vol. 124(C), pages 76-84.
    11. Christoph Pross & Christoph Strumann & Alexander Geissler & Helmut Herwartz & Nadja Klein, 2018. "Quality and resource efficiency in hospital service provision: A geoadditive stochastic frontier analysis of stroke quality of care in Germany," PLOS ONE, Public Library of Science, vol. 13(9), pages 1-30, September.
    12. Francesco Longo & Luigi Siciliani & Andrew Street, 2019. "Are cost differences between specialist and general hospitals compensated by the prospective payment system?," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 20(1), pages 7-26, February.
    13. Robert Stefko & Beata Gavurova & Kristina Kocisova, 2018. "Healthcare efficiency assessment using DEA analysis in the Slovak Republic," Health Economics Review, Springer, vol. 8(1), pages 1-12, December.
    14. Carine Milcent, 2014. "Coût des soins hospitaliers : effet de la concurrence par la qualité," Working Papers halshs-01010327, HAL.
    15. Carine Milcent, 2015. "Tarification et variabilité des coûts hospitaliers : Le cas de l'infarctus du myocarde," PSE Working Papers halshs-01202684, HAL.
    16. James F. Burgess, 2012. "Productivity Analysis in Health Care," Chapters, in: Andrew M. Jones (ed.), The Elgar Companion to Health Economics, Second Edition, chapter 34, Edward Elgar Publishing.
    17. G. Sav, 2012. "Stochastic Cost Frontier and Inefficiency Estimates of Public and Private Universities: Does Government Matter?," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 18(2), pages 187-198, May.
    18. Baines, Darrin & Disegna, Marta & Hartwell, Christopher A., 2021. "Portfolio frontier analysis: Applying mean-variance analysis to health technology assessment for health systems under pressure," Social Science & Medicine, Elsevier, vol. 276(C).
    19. Boris Bravo-Ureta & William Greene & Daniel Solís, 2012. "Technical efficiency analysis correcting for biases from observed and unobserved variables: an application to a natural resource management project," Empirical Economics, Springer, vol. 43(1), pages 55-72, August.
    20. G. Thomas Sav, 2012. "Cost Efficiencies and Rankings of Flagship Universities," American Journal of Economics and Business Administration, Science Publications, vol. 3(4), pages 596-603, January.
    21. Thanassoulis, Emmanuel & Silva Portela, Maria & Graveney, Mike, 2016. "Identifying the scope for savings at inpatient episode level: An illustration applying DEA to chronic obstructive pulmonary disease," European Journal of Operational Research, Elsevier, vol. 255(2), pages 570-582.
    22. Chang, Hung-Hao & Boisvert, Richard N., 2009. "The Conservation Reserve Program, Off-Farm Work, and Farm Household Technical Efficiencies," Working Papers 57034, Cornell University, Department of Applied Economics and Management.
    23. repec:kap:iaecre:v:18:y:2012:i:2:p:187-198 is not listed on IDEAS

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