Measuring hospital efficiency: a comparison of two approaches

Abstract

Objective: To compare the results of scoring hospital efficiency by means of two new types of frontier models, Data Envelopment Analysis (DEA) and stochastic frontier regression (SFR).

Study setting: Financial records of Florida acute care hospitals in continuous operation over the period 1982-1993.

Study design: Comparable DEA and SFR models are specified, and these models are then estimated to obtain the efficiency indexes yielded by each. The empirical results are subsequently examined to ascertain the extent to which they serve the needs of hospital policymakers.

Data collection: A longitudinal or panel data set is assembled, and a common set of output, input, and cost indicators is constructed to support the estimation of comparable DEA and SFR models.

Principal findings: DEA and SFR models yield convergent evidence about hospital efficiency at the industry level, but divergent portraits of the individual characteristics of the most and least efficient facilities.

Conclusions: Hospital policymakers should not be indifferent to the choice of the frontier model used to score efficiency relationships. They may be well advised to wait until additional research clarifies reasons why DEA and SFR models yield divergent results before they introduce these methods into the policy process.