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Cost inefficiency in Washington hospitals: a stochastic frontier approach using panel data.

We analyze a sample of Washington State hospitals with a stochastic frontier panel data model, specifying the cost function as a generalized Leontief function which, according to a Hausman test, performs better in this case than the translog form. A one-stage FGLS estimation procedure which directly models the inefficiency effects improves the efficiency of our estimates. We find that hospitals with higher casemix indices or more beds are less efficient while for-profit hospitals and those with higher proportion of Medicare patient days are more efficient. Relative to the most efficient hospital, the average hospital is only about 67% efficient.

Data Collection↗

A note on the use of conservation practices in U.S. agriculture.

This article measures the effect of an increase in productivity attributable to an increase in soil organic carbon associated with the increase in the use of conservation practices in agriculture in the United States. Both the direct and indirect effects are calibrated. The analytical approach used consists of a dynamic computable general equilibrium model composed of 14 producing sectors, 10 consuming sectors, seven household categories classified by income, and a government. The results suggest that the impact of a change in productivity is an increase in output over a six year period starting in 1998 in field crops. The most significant impact is felt in the livestock sector. This is because field crops are a major input in the production of livestock. The food processing sector also exhibits a relatively large increase because of the increase in inputs of both field crops and livestock. Manufacturing output increases primarily because overall investment rises and most investment utilizes manufacturing goods. The other producing sectors are generally unaffected by the increase in agricultural production due to an increase in soil organic carbon. Coincident with the increase in the production of field crops is a relatively large decrease in the price of field crops. Other noticeable price reductions occur in the livestock sector and the food processing sector. For the consuming sectors, the consumption of food and alcohol and tobacco increase but consumption in all of the other sectors remains basically unchanged. Prices in the food and alcohol and tobacco sectors decline by about 1% while the prices in the other sectors remain static. Household welfare increases in the aggregate by only 0.1% with this increase occurring uniformly across all household categories. Revenue received by the government increases a modest 2% in response to an increase in output and, hence, an increase in taxes paid. The results indicate that there are significant production benefits for several sectors that can be realized by an increase in the use of conservation practices in agricultural production which, in turn, enhances soil organic carbon. There are a number of policy options available to promote the use of conservation practices. These include education and technical assistance, financial assistance, research and development, land retirement, and regulation and taxes.

Agriculture↗

Cost shifting revisited: the case of service intensity.

This paper examines whether a health care provider's choice of service intensity for any patient group affects its cost shifting behavior. Our theoretical models indicate that firms may respond to lower prospective payment by decreasing service intensity to all of its patient groups, thereby giving firms an alternative to cost shifting. Additionally, the conditions under which cost shifting and lower service intensity occur are identical, regardless of profit status. Using a panel of California hospitals, we found that nonprofit hospitals do cost shift, while profit-maximizing hospitals do not. However, both firms respond to lower prospective payment by decreasing service intensity, thus supporting our theoretical conclusion that lower service intensity can be used as an alternative to cost shifting.

California↗

Does the incidence of group health insurance fall on individual workers?

Economic models predict that the cost of health insurance is borne by workers. In this paper we ask two questions. First, is cost shifting individual-specific: does a worker with higher expected medical expenses bear this cost? Second, how do explicit employee contributions affect cost shifting? We estimate wage change regressions that include as explanatory variables changes in health insurance coverage, changes in employee premium contributions, health status, and an interaction between health insurance changes and health status. We find no evidence of a significant wage offset at either the individual or group level and conclude that changes in health insurance status are not exogenous.

Cost Sharing↗

Employer health insurance and local labor market conditions.

Theory suggests that an employer's decisions about the amount of health insurance included in the compensation package may be influenced by the practices of other employers in the market. We test the role of local market conditions on decisions of small employers to offer insurance and their dollar contribution to premiums using data from two large national surveys of employers. These employers are more likely to offer insurance and to make greater contributions in communities with tighter labor markets, less concentrated labor purchasers, greater union penetration, and a greater share of workers in big business and a small share in regulated industries. However, our data do not support the notion that marginal tax rates affect employers' offer decision or contributions.

Adult↗

Evaluating the costs of alternative options for dementia services.

In the next decade the number of demented people is likely to increase. This has a financial impact on the resources allocated for health and social care. Classical methodologies for dealing with dementia include the historic model that has been criticised for its poor co-ordination between general practitioners, psychiatrists, social workers and the treatment services, and the needs-based approach that, although it involves a co-ordinating needs manager, does not prevent leapfrogging of patients. In order to overcome these problems we propose an annual screening of patients to take place in the needs-based models and compare this with a more sophisticated model in which after being screened patients are investigated for potential drug treatment. We also consider mix intervals for under 75 and over 75. Decision analysis is used to assess the different screening options. Assuming a 20% reduction by treatment of the cost of care we find optimal the investigation/treatment of all patients after screening. Sensitivity analysis shows that even an 8.5% reduction would make the needs-based models non-optimal.

Costs and Cost Analysis↗

The use of patient mix-adjusted control charts to compare in-hospital costs of care.

We introduce a technique for patient mix-adjusting x charts and compared differences between unadjusted and patient mix-adjusted results. Our data came from coronary artery bypass graft (CABG) surgery patients at Baptist Medical Center, Oklahoma City, Oklahoma. We first developed an unadjusted x control chart to compare monthly changes in CABG surgery costs and then used a published model to patient mix-adjust our x control chart information. Before adjustment, the average log costs for three of ten months were outside the 90% control limit lines, and there was a trend toward increasing costs. After adjustment, two months had average costs outside the 90% lower control limit lines, and the trend toward increasing costs had been explained by differences in patient acuity.

Accounting↗

The impact of the Austrian hospital financing reform on hospital productivity: empirical evidence on efficiency and technology changes using a non-parametric input-based Malmquist approach.

The 1997 hospital financing reform has been supposed to reduce considerable inefficiencies in the provision of hospital care in Austria. This paper focuses on the changes in hospital productivity between 1994 and 1998, thus including three years before the reform and two years after the reform. Using Data Envelopment Analysis we calculated the input-based Malmquist index, which is then decomposed into indices of pure technical efficiency change, scale efficiency change and technology change. The results illustrated a considerably positive shift in technology between 1996 and 1998, whereas the intended enhancement in technical efficiency has not yet taken place.

Analysis of Variance↗

Public health care and private insurance demand: the waiting time as a link.

This paper analyzes the effect of waiting times in the Spanish public health system on the demand for private health insurance. Expected utility maximization determines whether or not individuals buy a private health insurance. The decision depends not only on consumer's covariates such as income, socio-demographic characteristics and health status, but also on the quality of the treatment by the public provider. We interpret waiting time as a qualitative attribute of the health care provision. The empirical analysis uses the Spanish Health Survey of 1993. We cope with the absence of income data by using the Spanish Family Budget Survey of 1990-91 as a complementary data set, following the Arellano-Meghir method [4]. Results indicate that a reduction in the waiting time lowers the probability of buying private health insurance. This suggests the existence of a crowd-out in the health care provision market.

Adult↗

Ignoring small predictable profits and losses: a new approach for measuring incentives for cream skimming.

Under inadequate capitation formulae competing health insurers have an incentive for cream skimming, i.e., the selection of enrollees whom the insurer expects to be profitable. When evaluating different capitation formulae, previous studies used various indicators of incentives for cream skimming. These conventional indicators are based on all actual profits and losses or on all predictable profits and losses. For the latter type of indicators, this paper proposes, as a new approach, to ignore the small predictable profits and losses. We assume that this new approach provides a better indication of the size of the cream skimming problem than the conventional one, because an insurer has to take into account its costs of cream skimming and the (statistical) uncertainties about the net benefits of cream skimming. Both approaches are applied in theoretical and empirical analyses. The results show that, if our assumption is right, the problem of cream skimming is overestimated by the conventional ways of measuring incentives for cream skimming, especially in the case of relatively good capitation formulae.

Adult↗

Impact of internal and external environmental pressures on hospital inefficiency.

This study used stochastic frontier analysis to study variations in inefficiency in US hospitals. Cost-inefficiency (i.e., differences between best practice and actual expenses) is assumed to be affected by ownership status, competition, regulatory pressure, and market demand conditions. The level of analysis is the hospital (n = 3,262) and data for 1994 were used. The market was defined as the county in which the hospital was located. A two-stage approach was used in the analysis. In the first stage, translog cost-functions were estimated. Outputs used in the cost function analysis include inpatient discharges, post-admission days, outpatient visits, medical education, and case-mix index. Following Jondrow's technique, inefficiency scores (i.e., the difference between predicted least costs and actual costs) were estimated. Inefficiency estimates were not sensitive to changes in assumptions about the distribution of the error term. In the second stage, the estimated inefficiency scores were used as dependent variables to test hypotheses about the impact of internal and external environmental pressures on cost-inefficiency. Since the distribution of the estimated inefficiency scores was censored, Tobit equations were estimated. The second stage analysis found that measured inefficiency was negatively related with industry concentration (Herfindahl index), public payment policy, and unemployment rate and positively related with for-profit status.

Cost-Benefit Analysis↗

Risk adjustment of capitation payments to behavioral health care carve-outs: how well do existing methodologies account for psychiatric disability?

This study used 1994-1995 administrative data from a large public employer to examine the viability of commercial risk adjustment systems for setting capitation payments to competing behavioral health care "carve-outs". The ability of Hierarchical Condition Categories and Adjusted Diagnostic Groups to predict psychiatric expenditures was improved by controlling separately for psychiatric disability. However, even the best models underpredicted expenditures of patients with psychiatric disability by 15%. Relative to full capitation, "mixed" payment systems and soft capitation reduce the ability of carve-outs to earn disproportionate profits by enrolling healthy patients and avoiding sick ones, yet also diminish incentives for cost containment.

Adult↗

Contract design for primary care physicians: physician location and practice behaviour in small communities.

Most western countries employ a combination of fee-for-service, fixed salary and per capita subsidies to finance the services of general practitioners. Based on Norwegian data, the authors demonstrate that these financial schemes have been used in different types of municipalities. The authors argue that the fee-for-service and per capita components should be allowed to vary between primary physicians and municipalities: (a) If the patient population per primary physician is low and patient supply is unstable, the per capita subsidy or work-free income should be differentiated to ensure recruitment of physicians. (b) Physicians in municipalities with low physician coverage should be allotted a low basic grant, whilst per capita subsidy and fee-for-service payments should be used to stimulate service production. The opposite situation exists where there is a potential of supplier inducement due to high physician coverage. (c) The responsibility for designing contracts should be assigned to local rather than national authorities. These suggestions go against important elements in the reform of primary physician services in Norway.

Capitation Fee↗

Modelling of resource allocation to health care authorities in Stockholm county.

Since the Stockholm County Council introduced a system of purchasers and providers there has been a quest for population-based resource allocation models to allocate monies to purchasers of health care. In contrast to models used in Britain, Swedish models have been based on individual level data. This paper presents recent developments in the model used in Stockholm for all care except primary care, testing new statistical methods for compression and clustering of the matrices used and the effect of introducing diagnostic information in addition to the demographic and socio-economic information used before. We also show the effect of using more current data sources by replacing existing census variables with data from annually updated registers. Since the aim is to use the resource allocation models for prospective budgeting we test and evaluate the predictive power of the models one to two years ahead. Moreover, two calibration methods are compared: Cross-sectional modelling, based on data for one year only, versus prospective modelling, using population characteristics for one year and registered health-care costs for a following year. While models including diagnostic information are deemed valuable, the prospective models yield little improvement. Further, although it takes a combination of new variables to replace the census based model, the resulting model now implemented by Stockholm County Council has fewer estimated parameters.

Adolescent↗

Managed care, deficit financing, and aggregate health care expenditure in the United States: a cointegration analysis.

We applied a battery of cointegration tests comprising those of Johansen and Juselius [19], Phillips and Hansen [35], and Engle and Granger [6], to model aggregate health care expenditure using 1960-96 US data. The existence of a stable long-run economic relationship or cointegration is confirmed, in the United States, between aggregate health care expenditure and real GDP, population age distribution, managed care enrollment, number of practicing physicians, and government deficits. The evidence of cointegration among these variables, chosen on the theoretical basis of prior studies, implies that while they are individually non-stationary in levels, together they are highly correlated and move, in the long run to form an economic equilibrium relationship of US aggregate health care expenditure. More specifically, and for the first time in this line of inquiry, (i) managed care enrollment is found to be negatively associated with the level of health care spending, (ii) supply disinduced demand effects of physicians tend to moderate health expenditure, and (iii) government deficit financing is positively related to health care spending. The observed sign and magnitude of the income coefficient are consistent with health care being a luxury good.

Age Distribution↗

Technical efficiency and economies of diversification in health care.

In national health services, where there is a tendency towards a lack of resources and a continuous increase in demand, it is necessary to implement decisions that promote efficiency. In this paper we focus on potential diversification economies as a strategy to increase efficiency levels. We evaluate the change in efficiency in Catalan hospitals between 1987 and 1992, and analyse the presence of possible diversification economies in each hospital. We use Data Envelopment Analysis, which does not need information on either input or output prices. The results are that the majority of hospitals could increase their efficiency and reduce their costs by diversification to the output-mix offered. Potential productivity gains are between 29% and 46%.

Benchmarking↗

Efficiency measurement of health care: a review of non-parametric methods and applications.

There has been increasing interest in measuring the productive performance of health care services, since the mid-1980s. This paper reviews this literature and, in particular, the concept and measurement of efficiency and productivity. Concerning measurement, we focus on the use of Data Envelopment Analysis (DEA), a technique particularly appropriate when multiple outputs are produced from multiple inputs. Applications to hospitals and to the wider context of general health care are reviewed and the empirical evidence from both the USA and Europe (EU) is that public rather than private provision is more efficient.

Cost-Benefit Analysis↗