A national study of the efficiency of hospitals in urban markets

Abstract

Using a sample of 3,000 urban hospitals, this article examines the contributions of selected hospital characteristics to variations in hospital technical efficiencies, while it accounts for multiple products and inputs, and controls for local environmental variations. Four hospital characteristics are examined: hospital size, membership in a multihospital system, ownership, and payer mix (managed care contracts, percent Medicare, and percent Medicaid). Ownership and percent Medicare are consistently found to be related significantly to hospital efficiency. Within the ownership variable, government hospitals tend to be more efficient and for-profit hospitals less efficient than other hospitals. Higher percentages of Medicare payment are negatively related to efficiency. While not consistently significant across all five of the MSA size categories in which the analyses are conducted, possession of managed care contracts, membership in a multihospital system, and size all are consistently related positively to hospital technical efficiency. These variables are also all significant when the hospitals are examined in a combined analysis. Percent Medicaid was not significant in any of the analyses. Implications for policy and the need for methodological work are discussed.