How reliable are hospital efficiency estimates? Exploiting the dual to homothetic production

Abstract

For scientific use, stochastic frontier estimates of hospital efficiency must be robust to plausible departures from the assumptions made by the investigator. Comparisons of alternative study designs, each well within the 'accepted' range according to current practice, generate similar mean inefficiencies but substantially different hospital rankings. The three alternative study contrasts feature (1) pooling vs partitioned estimates, (2) a cost function dual to a homothetic production process vs the translog, and (3) two conceptually valid but empirically different cost-of-capital measures. The results suggest caution regarding the use of frontier methods to rank individual hospitals, a use that seems to be required for reimbursement incentives, but they are robust when generating comparisons of hospital group mean inefficiencies, such as testing models that compare non-profits and for-profits by economic inefficiency. Demonstrations find little or no efficiency differences between these paired groups: non-profit vs for-profit; teaching vs non-teaching; urban vs rural; high percent of Medicare reliant vs low percent; and chain vs independent hospitals.

Efficiency of Hospitals in the Czech Republic

“…Zuckerman et al (1994) is considered to be a pioneering work in the examination of determinants of ineffi ciency, later further studies emerged, e.g. (Rosko & Chilingerian, 1999;Rosko, 2001;Folland & Hofl er, 2001). …”

Economies of Scale and Efficiency Measurement in Switzerland’s Nursing Homes

“…The main arguments against these models are related to the unobserved heterogeneity due to differences in case-mix and quality and the errors committed by aggregation of outputs as well as non-testable assumptions on the distribution of efficiency. Folland and Hofler (2001) provide a discussion on the reliability of hospital efficiency estimates obtained from stochastic cost frontier models. These authors show that the individual efficiency estimates are rather sensitive to the adopted model specification and functional form.…”

The Cost Efficiency and Clinical Quality of Institutional Long-Term Care for the Elderly

“…Another important question relates to the choice of other independent variables and inefficiency effect variables, where there seems to be several practices related to the incorporation of quality measures in the analysis. In empirical studies, quality measures have been entered into the (stochastic frontier) cost function [21,[33][34][35] or as separate inefficiency effects [15,[36][37][38] or in both the frontier function and as inefficiency effects [39,40]. In some studies quality measures are also considerately omitted [41].…”