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

    Authors

    S. T. Folland;R. Hofler

    Comments

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    Abbreviated Journal Title

    Health Econ.

    Keywords

    efficiency; frontiers; hospitals; FRONTIER COST-FUNCTIONS; STOCHASTIC FRONTIER; TECHNICAL EFFICIENCY; INEFFICIENCY; PERFORMANCE; CARE; OWNERSHIP; QUALITY; US; Economics; Health Care Sciences & Services; Health Policy & Services

    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 (I) 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. Copyright (C) 2001 John Wiley Sons, Ltd.

    Journal Title

    Health Economics

    Volume

    10

    Issue/Number

    8

    Publication Date

    1-1-2001

    Document Type

    Article

    Language

    English

    First Page

    683

    Last Page

    698

    WOS Identifier

    WOS:000173064700001

    ISSN

    1057-9230

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