Characteristics of High- and Low-Efficiency Hospitals

Abstract

We compared performance, operating characteristics, and market environments of low- and high-efficiency hospitals in the 37 states that supplied inpatient data to the Healthcare Cost and Utilization Project from 2006 to 2010. Hospital cost-inefficiency estimates using stochastic frontier analysis were generated. Hospitals were then grouped into the 100 most- and 100 least-efficient hospitals for subsequent analysis. Compared with the least efficient hospitals, high-efficiency hospitals tended to have lower average costs, higher labor productivity, and higher profit margins. The most efficient hospitals tended to be nonteaching, investor-owned, and members of multihospital systems. Hospitals in the high-efficiency group were located in areas with lower health maintenance organization penetration and less competition, and they had a higher share of Medicaid and Medicare admissions. Results of the analysis suggest there are opportunities for public policies to support improved efficiency in the hospital sector.

Addressing endogeneity in operations management research: Recent developments, common problems, and directions for future research

“…While overall hospital operating costs may increase with population growth and general inflation, cost efficiency largely depends on internal operational characteristics including specializations, teaching intensity, communication and collaborations among different care providers, etc. (Huckman and Pisano, 2006; Ding, 2014; Rasko et al, 2017). Therefore, we believe the two demographic variables are approximately exogenous to our model specifications in equation (1) and use these two time‐variant variables as instruments in the following endogeneity tests.…”

“…From a learning perspective, cumulative adjusted patient days provide opportunities for efficiency improvement and therefore reduce cost per patient day. From a demand and supply perspective, a hospital with a lower cost per patient day may attract more patients, assuming it delivers comparable quality of services as its competitors (Rasko et al, 2017). Thus, we have a theoretical reason to believe that endogeneity may exist in our model due to simultaneity.…”

Determinants of Hospital Efficiency: insights from the literature

“…It is argued that, when a hospital is part of a system, greater efficiency is achieved, as the production of multiple products in different hospitals within the system could only be achieved by the employment of highly specialized group of managers and technical experts, and the elimination of duplicative administrative functions [41]. In a recent research, comparing performance, operating characteristics, and market environments of low-and highefficiency hospitals in 37 states in the USA using data from the Healthcare Cost and Utilization Project, high-efficiency hospitals tended to be members of multihospital systems, non-teaching, and investor-owned [42]. The benefits of system membership depends greatly upon the characteristics of the system [43].…”

Determinants of Hospital Efficiency: insights from the literature

“…It is argued that, when a hospital is part of a system, greater efficiency is achieved, as the production of multiple products in different hospitals within the system could only be achieved by the employment of highly specialized group of managers and technical experts, and the elimination of duplicative administrative functions [42]. In a recent research, comparing performance, operating characteristics, and market environments of low-and high-efficiency hospitals in 37 states in the USA using data from the Healthcare Cost and Utilization Project, high-efficiency hospitals tended to be members of multihospital systems, non-teaching, and investor-owned [43]. The benefits of system membership depends greatly upon the characteristics of the system [44].…”