Performance of U.S. Teaching Hospitals: A Panel Analysis of Cost Inefficiency

Abstract

This research summarizes an analysis of the impact of environment pressures on hospital inefficiency during the period 1990-1999. The panel design included 616 hospitals. Of these, 211 were academic medical centers and 415 were hospitals with smaller teaching programs. The primary sources of data were the American Hospital Association's Annual Survey of Hospitals and Medicare Cost Reports. Hospital inefficiency was estimated by a regression technique called stochastic frontier analysis. This technique estimates a "best practice cost frontier" for each hospital that is based on the hospital's outputs and input prices. The cost efficiency of each hospital was defined as the ratio of the stochastic frontier total costs to observed total costs. Average inefficiency declined from 14.35% in 1990 to 11.42% in 1998. It increased to 11.78% in 1999. Decreases in inefficiency were associated with the HMO penetration rate and time. Increases in inefficiency were associated with for-profit ownership status and Medicare share of admissions. The implementation of the provisions of the Balanced Budget Act of 1997 was followed by a small decrease in average hospital inefficiency. Analysis found that the SFA results were moderately sensitive to the specification of the teaching output variable. Thus, although the SFA technique can be useful for detecting differences in inefficiency between groups of hospitals (i.e., those with high versus those with low Medicare shares or for-profit versus not-for-profit hospitals), its relatively low precision indicates it should not be used for exact estimates of the magnitude of differences associated with inefficiency-effects variables.

Variations in hospitalisation costs for acute myocardial infarction – a comparison across Europe

“…Indeed, in the French hospitals included in our study, approximately 95% of AMI patients received PTCA with stenting. Another reason for the higher costs observed by Dormont et al is that teaching hospitals are less efficient and therefore incur higher costs for comparable episodes of care (Mechanic et al, 1998;Rosko, 2004). Economies of scale might explain why the hospitalisation costs in our sample were comparable to those observed in the study by Dormont et al, at least in terms of absolute values.…”

“…According to our selection criteria, only general acute hospitals were asked to provide cost and service data for each episode of care. Teaching hospitals were explicitly excluded because several studies have shown them to have greater resource intensity and, consequently, higher costs per case (Lopez-Casanova and Saez, 1999;Rosko, 2004).…”

A micro-costing approach to estimating hospital costs for appendectomy in a Cross-European context

“…In addition, the study site was an academic hospital with heavy teaching loads. Because we know from several studies that academic hospitals are less efficient (Rosko, 2004) and incur higher costs (Mechanic et al, 1998), this further limits comparability to our study.…”

“…Furthermore, to avoid the bias of more costly cases due to higher resource intensity in teaching hospitals, only general acute hospitals with non-teaching status were included in our sample (Mechanic et al, 1998;Rosko, 2004). As cost data are rarely available in such detail, the partners often selected hospitals that regularly delivered data as part of national or regional cost data studies used to calculate DRGs.…”

Effects of Ownership on Hospital Efficiency in Germany.

“…The most important regressor is the Hirschman-Herfindahl index (HHI), which measures competitive pressure in a hospital's market, a standard economic measure of industry concentration. The market area was defined as the county in which a hospital was located, which is a frequently used definition in hospital studies (Chang, Chang, Das, and Li 2004;Rosko 1999Rosko , 2001Rosko , 2004Rosko and Chilingerian 1999;Chirikos and Sear 1994). Although there has been some controversy about the appropriate definition of a hospital's market area, Garnick, Luft, Robinson, and Tetreault (1987) reported that, for the purpose of measuring competitive activity, it made little difference whether a hospital's market was defined as a county or as a radius.…”