Alternative methods to examine hospital efficiency: Data Envelopment Analysis and Stochastic Frontier Analysis
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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- Kooreman, Peter, 1994. "Data envelopment analysis and parametric frontier estimation: complementary tools," Journal of Health Economics, Elsevier, vol. 13(3), pages 345-346, October.
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- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
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