The scale of hospital production in different settings: One size does not fit all

This paper analyses the productive efficiency of 141 public hospitals from 1998-2004 in two Canadian provinces; one a small province with a few small cities and a generally more rural population and the other a large province that is more urban in nature, with a population who mainly live in large cities. The relative efficiencies of the hospitals, the changes in productivity during this time period, and the relationship between efficiency and the size or scale of the hospitals are investigated using data envelopment analysis. The models for the production of health care use case mix adjusted hospital discharges as the output, and nursing hours as inputs. We find clear differences between the two provinces. Making use of ‘own’ and ‘meta’ technical efficiency frontiers, we demonstrate that efficient units in the larger and more urban province are larger than non-efficient units in that province. However, efficient hospitals in the smaller and more rural province are smaller than non-efficient hospitals in that province. Overall, efficient hospitals in the larger more urban province are larger than efficient hospitals in the smaller more rural province. This has interesting policy implications - different hospitals may have different optimal sizes, or different efficient modes of operation, depending on location, the population they serve, and the policies their respective provincial governments wish to implement. In addition, there are lessons to be learned by comparing the hospitals across the two provinces, since the inefficient hospitals in the small rural province predominantly use hospitals from the large urban province as benchmarks, such that substantially larger improvement potential can be identified by inter-provincial rather than intra-provincial benchmarking analysis.