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Efficiency Analysis of Rural Hospitals: Parametric and Semi-parametric Approaches

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  • Nedelea, I. Cristian
  • Fannin, James Matthew

Abstract

This paper examined cost efficiency differences between rural hospitals participating in the Critical Access Hospital (CAH) Program and a group of non-converting, prospectively paid rural hospitals using both a two-stage semi-parametric approach as well as stochastic frontier analysis (SFA). CAHs receive Medicare cost-based reimbursement, in contrast with the rest of the hospitals reimbursed under Medicare prospective payment system (PPS). However, cost-based reimbursement has been associated with inefficiency in hospital operations and, consequently, concerns have been raised about the efficiency of CAHs. Results showed a positive and significant effect of CAH status on cost inefficiency under both model specifications suggesting that CAHs were less cost efficient than non-converting rural hospitals.

Suggested Citation

  • Nedelea, I. Cristian & Fannin, James Matthew, 2012. "Efficiency Analysis of Rural Hospitals: Parametric and Semi-parametric Approaches," 2012 Annual Meeting, February 4-7, 2012, Birmingham, Alabama 119725, Southern Agricultural Economics Association.
  • Handle: RePEc:ags:saea12:119725
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    File URL: http://purl.umn.edu/119725
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    References listed on IDEAS

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    1. 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.
    2. Schmidt, Peter & Sickles, Robin C, 1984. "Production Frontiers and Panel Data," Journal of Business & Economic Statistics, American Statistical Association, vol. 2(4), pages 367-374, October.
    3. Miika Linna, 1998. "Measuring hospital cost efficiency with panel data models," Health Economics, John Wiley & Sons, Ltd., vol. 7(5), pages 415-427.
    4. Simar, Leopold & Wilson, Paul W., 2007. "Estimation and inference in two-stage, semi-parametric models of production processes," Journal of Econometrics, Elsevier, vol. 136(1), pages 31-64, January.
    5. Paul E. McNamara, 1999. "Welfare Effects of Rural Hospitial Closures: A Nested Logit Analysis of the Demand for Rural Hospital Services," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(3), pages 686-691.
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    More about this item

    Keywords

    rural hospitals; efficiency; SFA; two-stage approach; Community/Rural/Urban Development; Health Economics and Policy; Production Economics; Productivity Analysis; Public Economics; Research Methods/ Statistical Methods; I18;

    JEL classification:

    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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