Evaluation and optimization of hospital system in Chinese provinces: does mortality matter?

During the production process of goods and services, sometimes undesirable outputs are difficult to avoid. However, this aspect is often ignored. Hospitals produce patient care, but undesirable outputs do arise. The novelty of this paper is to introduce the mortality as an undesirable output into the derivation of the public hospital efficiency measure. Similar to the production of economic goods and pollution where the latter increase along with the former, our description of mortality in hospital is considered as weakly disposable. Based on an extension model of Kuosmanen (2005), we evaluate the public hospital efficiency with and without incorporating mortality under four scenarios. We apply this model to measure public hospital efficiency in Chinese provinces. The results indicate that no matter whether one considers undesirable outputs within the objective functions, it has a significant impact on benchmarking once the mortality is included to define the production technology.