The European Journal of Health Economics

, Volume 16, Issue 5, pp 459–469 | Cite as

Analysis of the cost and efficiency relationship: experience in the Turkish pay for performance system

Original Paper


This paper analyzes the effects of the pay for performance (PFP) system on the efficiencies of public and private hospitals in Turkey. In order to evaluate these effects, we examine the relationship between hospital efficiency and health care costs in Turkey, and address the impact of the PFP system on the efficiencies of public and private hospitals. In an effort to analyze the efficiencies of public and private hospitals, this study uses data envelopment analysis. The Malmquist Productivity Index is also used to analyze the patterns of efficiency change for the study years from 2001 to 2008. This study shows that health care costs and hospital efficiency are negatively correlated for private hospitals, while they are positively correlated for public hospitals. In other words, increased health care costs might reduce efficiency in private hospitals in contrast to public hospitals. Our findings also indicate that average efficiencies of public hospitals tend to increase, particularly during the implementation period of PFP system. The efficiency trend of private hospitals, conversely, decreased in the latter periods of the PFP system. Suggestions for improvement are provided to the health care policy makers regarding the impact of health care reforms on public and private hospitals.


Hospital efficiency Health care costs Data envelopment analysis Public and private hospitals Pay for performance system 

JEL Classification

C14 C23 D24 I15 I18 


  1. 1.
    Lee, K.H., Yang, S.B., Choi, M.: The association between hospital ownership and technical efficiency in a managed care environment. J. Med. Syst. 33(4), 307–315 (2009)CrossRefPubMedGoogle Scholar
  2. 2.
    Allen, P.: ‘Payment by results’ in the English NHS: the continuing challenges. Public Money Manag. 29(3), 161–166 (2009)CrossRefGoogle Scholar
  3. 3.
    Botten, G., Grepperud, S., Nerland, S.M.: Trading patients lessons from Scandinavia. Health Policy 69(3), 317–327 (2004)CrossRefPubMedGoogle Scholar
  4. 4.
    Garcia-Lacalle, J., Martin, E.: Rural vs urban hospital performance in a ‘competitive’ public health service. Soc. Sci. Med. 71(6), 1131–1140 (2010)CrossRefPubMedGoogle Scholar
  5. 5.
    Chang, S.J., Hsiao, H.C., Huang, L.H., Chang, H.: Taiwan quality indicator project and hospital productivity report. Omega 39(1), 14–22 (2011)CrossRefGoogle Scholar
  6. 6.
    Aydın, S., Demirel, H.: Performance Management in Health: Performance Based Supplementary Payment System. MoH Publication, Ankara (2007)Google Scholar
  7. 7.
    Akdag, R., Aydin, S., Demirel, H.: Progress Report Health Transformation Program in Turkey. MoH Publication, Ankara (2009)Google Scholar
  8. 8.
    Aydın, S., Demir, M., Guler, H., Ozturk, A., Tarhan, D., Demir, B., Kapan, S.H.: Institutional Performance and Quality Applications in Health Care. Lazer Ofset Publications, Ankara (2009)Google Scholar
  9. 9.
    OECD, Reviews of Health Systems Turkey. OECD and the International Bank for Reconstruction and Development/The World Bank (2008)Google Scholar
  10. 10.
    Levaggi, L., Levaggi, R.: Strategic costs and preferences revelation in the allocation of resources for health care. Int. J. Health Care Financ. Econ. 10(3), 239–256 (2010)CrossRefGoogle Scholar
  11. 11.
    Jegers, M., Kesteloot, K., DeGraeve, D., Gilles, W.: A typology for provider payment systems in health care. Health Policy 60(3), 255–273 (2002)CrossRefPubMedGoogle Scholar
  12. 12.
    Sulku, N.S., Caner, A.: Health care expenditure and gross domestic product: the Turkish case. Eur. J. Health Econ. 12, 29–38 (2011)CrossRefPubMedGoogle Scholar
  13. 13.
    Charnes, A., Cooper, W., Rhodes, E.: Measuring the efficiency of decision making units. Eur. J. Oper. Res. 2(6), 429–444 (1978)CrossRefGoogle Scholar
  14. 14.
    Banker, R., Charnes, A., Cooper, W.: Some models for estimating technical and scale inefficiencies in data envelopment analysis. Manag. Sci. 30(9), 1078–1092 (1984)CrossRefGoogle Scholar
  15. 15.
    Chuang, C.L., Chang, P.C., Lin, R.H.: An efficiency data envelopment analysis model reinforced by classification and regression tree for hospital performance evaluation. J. Med. Syst. (2010). doi:10.1007/s10916-010-9598-5 Google Scholar
  16. 16.
    Brown, H.S., Pagan, J.A.: Managed care and the scale efficiency of US hospitals. Int. J. Health Care Financ. Econ. 6(4), 278–289 (2006)CrossRefGoogle Scholar
  17. 17.
    Ramanathan, R.: Operations assessment of hospitals in the Sultanate of Oman. Int. J. Oper. Prod. Manag. 25, 39–54 (2006)CrossRefGoogle Scholar
  18. 18.
    Cooper, W.W., Seiford, L.M., Tone, K.: Data envelopment analysis a comprehensive text with models, applications, references and DEA-Solver software. Springer, New York (2007)Google Scholar
  19. 19.
    Aletras, V., Kontodimopoulos, N., Zagouldoudis, A., Niakas, D.: The short-term effect on technical and scale efficiency of establishing regional health systems and general management in Greek NHS hospitals. Health Policy 83(2), 236–245 (2007)CrossRefPubMedGoogle Scholar
  20. 20.
    Butler, T.W., Li, L.: The utility of returns to scale in DEA programming: an analysis of Michigan rural hospitals. Eur. J. Oper. Res. 161(2), 469–477 (2005)CrossRefGoogle Scholar
  21. 21.
    Dimas, G., Goula, A., Soulis, S.: Productive performance and its components in Greek public hospitals. ORIJ (2010). doi:10.1007/s12351-010-0082-2 Google Scholar
  22. 22.
    Cooper, W.W., Seiford, L.M., Zhu, J.: Handbook on Data Envelopment Analysis. Kluwer, Boston (2004)CrossRefGoogle Scholar
  23. 23.
    Fare, R., Grosskopf, S., Norris, M., Zhang, Z.: Productivity growth, technical progress, and efficiency change in industrialized countries. Am. Econ. Rev. 84, 66–83 (1994)Google Scholar
  24. 24.
    Chang, H., Cheng, M.A., Das, S.: Hospital ownership and operating efficiency: evidence from Taiwan. Eur. J. Oper. Res. 159(2), 513–527 (2004)CrossRefGoogle Scholar
  25. 25.
    Lin, C., Berg, S.V.: Incorporating service quality into yardstick regulation: an application to the Peru water sector. Rev. Ind. Organ. 32, 53–75 (2008)CrossRefGoogle Scholar
  26. 26.
    Ancarani, A., Mauro, C.D., Giammanco, M.D.: The impact of managerial and organizational aspects on hospital wards’ efficiency: evidence from a case study. Eur. J. Oper. Res. 194, 280–293 (2009)CrossRefGoogle Scholar
  27. 27.
    Weng, S.J., Wu, T., Blackhurst, J., Mackulak, G.: An extended DEA model for hospital performance evaluation and improvement. Health Serv. Outcomes Res. Methodol. 9, 39–53 (2009)CrossRefGoogle Scholar
  28. 28.
    Valdmanis, V.G., Rosko, M.D., Mutter, R.L.: Hospital quality, efficiency and input slack differentials. Health Serv. Res. 43(5), 1830–1848 (2008)CrossRefPubMedCentralPubMedGoogle Scholar
  29. 29.
    Linna, M., Häkkinen, U.: Reimbursing for the costs of teaching and research in finnish hospitals: a stochastic frontier analysis. Int. J. Health Care Financ. Econ. 6, 83–97 (2006)CrossRefGoogle Scholar
  30. 30.
    Hollingsworth, B.: The measurement of efficiency and productivity of health care delivery. Health Econ. 17(10), 1107–1128 (2006)CrossRefGoogle Scholar
  31. 31.
    Blank, J.L.T., Valdmanis, V.G.: Environmental factors and productivity on Dutch hospitals: a semi-parametric approach. Health Care Manag. Sci. 13, 27–34 (2010)CrossRefPubMedCentralPubMedGoogle Scholar
  32. 32.
    Dyson, R.G., Allen, R., Camanho, A.S., Podinovski, V.V., Sarrico, C.S., Shale, E.A.: Pitfalls and protocols in DEA. Eur. J. Oper. Res. 132(2), 245–259 (2001)CrossRefGoogle Scholar
  33. 33.
    Yu, W., Ramanathan, R.: An assessment of operational efficiencies in the UK retail sector. Int. J. Retail Distrib. Manag. 36(11), 861–882 (2008)CrossRefGoogle Scholar
  34. 34.
    Chen, A., Hwang, Y., Shao, B.: Measurement and sources of overall and input inefficiencies: evidences and implications in hospital services. Eur. J. Oper. Res. 161(2), 447–468 (2005)CrossRefGoogle Scholar
  35. 35.
    Nayar, P., Ozcan, Y.A.: Data envelopment analysis comparison of hospital efficiency and quality. J. Med. Syst. 32(3), 193–199 (2008)CrossRefPubMedGoogle Scholar
  36. 36.
    Jacops, R.: Alternative methods to examine hospital efficiency: data envelopment analysis and stochastic frontier analysis. Health Care Manag. Sci. 4(2), 103–115 (2008)CrossRefGoogle Scholar

Copyright information

© Springer-Verlag Berlin Heidelberg 2014

Authors and Affiliations

  1. 1.Operations and Management Department, Faculty of Business AdministrationGebze Institute of TechnologyGebzeTurkey
  2. 2.Department of Administrative ScienceBeykent UniversityTaksimTurkey

Personalised recommendations