The impact of internal markets on health care efficiency: evidence from health care reforms in Sweden

Abstract

A purchaser/provider split together with output-based reimbursement were recently introduced by several Swedish county councils. These changes have been motivated by arguments of efficiency and consumer choice. This paper tests the null hypothesis that hospital services are provided as efficiently by county councils with internal markets and output-based reimbursement as by county councils with budget reimbursement. We first estimate technical efficiency using data envelopment analysis and then we regress the efficiency scores as the dependent variable on new internal organizations in a multiple regression by use of pooled cross-section data for the 26 county councils for two years (1993 and 1994). The results reject our null hypothesis and we conclude that the organizational changes in the county councils improve health care efficiency. Our results further indicate that the potential savings in costs due to a hypothetical switch from budget based allocation to an output based allocation is about 13%. We also found some evidence indicating that county councils with a nonsocialist political majority are relatively more efficient than those with a socialist regime and that large county councils are more efficient than small county councils.

Internal markets and health care efficiency: a multiple-output stochastic frontier analysis

“…In regard of the magnitude of the new reform effect, our results indicate that the potential savings in costs or potential output increases due to a hypothetical switch from budget-based allocation to a output-based allocation is 9.7%. This is consistent with the previous study by Gerdtham et al [5], let alone that the estimated potential savings are somewhat lower in this study compared with the estimated 13% in the earlier study.…”

“…Apart from the stochastic ray model specification and estimation, the present study extends and develops the previous work by Gerdtham et al [5] in a number of respects. First, the database has been expanded by 5 additional years (1989 -1992 and 1995) for each of the 26 County Councils.…”

Activity‐based financing of health care––experiences from Sweden

“…The conclusion was drawn that a changeover from budget-based payment to activity-based financing gave a productivity increase potential of close to 10 per cent. Similar results came from another study, in part conducted by the same researchers, covering the period 1993-1994 (Gerdtham et al, 1997). In both of these studies, controls for other factors affecting the outcome apart from activity-based financing were included to some extent.…”

Measuring efficiency in clinical departments

“…Measures of hospital efficiency play an important role in the evaluation of health policy initiatives [1,2] and in comparative analyses of health systems [3]. They can also be used in the monitoring of resource utilisation, although the value of this is sometimes questioned [4].…”