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Alternative methods to examine hospital efficiency: Data Envelopment Analysis and Stochastic Frontier Analysis

  • Rowena Jacobs

    ()

    (Centre for Health Economics, The University of York)

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    There has been increasing interest in the ability of different methods to rank efficient hospitals over their inefficient counterparts. The UK Department of Health has used three cost indices to benchmark NHS Trusts. This study uses the same dataset and compares the efficiency rankings from the cost indices with those obtained using Data Envelopment Analysis (DEA) and Stochastic Cost Frontier Analysis (SCF). The paper concludes that each method each has particular strengths and weaknesses and potentially measure different aspects of efficiency. Several specifications should be used to develop ranges of inefficiency to act as signalling devices rather than point estimates. There appears to be a large amount of random ‘noise’ in the study which suggests that there are not truly large efficiency differences between Trusts, and savings from bringing up poorer performers would in fact be very modest.

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    File URL: http://www.york.ac.uk/media/che/documents/papers/discussionpapers/CHE%20Discussion%20Paper%20177.pdf
    File Function: First version, 2000
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    Paper provided by Centre for Health Economics, University of York in its series Working Papers with number 177chedp.

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    Length: 30 pages
    Date of creation: Feb 2000
    Date of revision:
    Handle: RePEc:chy:respap:177chedp
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    1. Kooreman, Peter, 1994. "Data envelopment analysis and parametric frontier estimation: complementary tools," Journal of Health Economics, Elsevier, vol. 13(3), pages 345-346, October.
    2. 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.
    3. 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.
    4. 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.
    5. repec:ner:tilbur:urn:nbn:nl:ui:12-377581 is not listed on IDEAS
    6. Neil Soderlund & Rowena van der Merwe, 1999. "Hospital benchmarking analysis and the derivation of cost indices," Working Papers 174chedp, Centre for Health Economics, University of York.
    7. 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.
    8. Hadley, Jack & Zuckerman, Stephen, 1994. "The role of efficiency measurement in hospital rate setting," Journal of Health Economics, Elsevier, vol. 13(3), pages 335-340, October.
    9. Valdmanis, Vivian, 1992. "Sensitivity analysis for DEA models : An empirical example using public vs. NFP hospitals," Journal of Public Economics, Elsevier, vol. 48(2), pages 185-205, July.
    10. Vitaliano, Donald F. & Toren, Mark, 1994. "Frontier analysis: A reply to Skinner, Dor and Newhouse," Journal of Health Economics, Elsevier, vol. 13(3), pages 341-343, October.
    11. Dor, Avi, 1994. "Non-minimum cost functions and the stochastic frontier: On applications to health care providers," Journal of Health Economics, Elsevier, vol. 13(3), pages 329-334, October.
    12. 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.
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