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The Focus Efficiency of U.S. Hospitals

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Abstract

Hospital productivity has been a research topic for over two decades. Whereas much has been learned regarding cost, technical, scale, and allocative efficiency as well as the impact that weakly disposable inputs/outputs have on hospital behavior, we expand on this research by examining size and service offering, or focus, efficiency at the metropolitan area level for US hospitals. By using an extension of the Free Coordination Hull (FCH), we are able to determine whether hospitals in our sample could become more efficient if they provided more services (reduce inefficiency due to too narrow a focus) or fewer services (reduce inefficiency due to too broad a focus). Our results suggest that findings vary among the hospital markets. This approach could be used by policy makers and managers in order to reduce costs by sharing services, reducing services in hospitals, or expanding services in hospitals. Findings from a study such as this should aid reform programs by providing more information on the sources of hospital inefficiency.

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Notes

  1. We do not examine the issue of specialty hospitals vs. general hospitals. Specialty hospitals serve specific patient populations (e.g., children) or provide a limited type of care (e.g., orthopedic); general hospitals serve broad populations and offer a wide range of services. The increased presence of specialty hospitals has been controversial. Proponents of specialty hospitals argue that their focus can lead to lower costs and higher quality; opponents contend that they cream-skim healthier patients and more profitable services away from general hospitals. See, for example, Barro et al. (2006) for a discussion of this issue.

  2. The proliferation of service offerings in the U.S. is attributed, in part, to non-price competition among hospitals. It should be noted, however, that the nature of hospital competition differs across countries; see Virgo (1984a, b).

  3. Greater specialization among hospitals would increase each hospital’s volume of its specific output, which would increase capacity utilization and, potentially, quality (Kraus et al. 2005).

  4. Earlier studies have proposed ways to measure economies of scope using the nonparametric method DEA (e.g., Ferrier et al. 1993 and Morita 2003); unfortunately, DEA imposes convexity on the reference technology. The drawback of convexity is that there can be no measure of efficiency improvements by specialization gains because, by construction, the convex combination of two or more production plans is always on or below the efficient frontier.

  5. A new definition of the metropolitan areas, the Core Based Statistical Area, or CBSA, replaced the Metropolitan Statistical Area (MSA), after the 2000 U.S. Census.

  6. We focus only on the hospital side of an observation’s operations rather than including both the hospital and the nursing home components that may operate within the same hospital.

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Authors and Affiliations

  1. University of Arkansas, Fayetteville, AR, USA

    Gary D. Ferrier

  2. CNRS/LEM and IÉSEG School of Management, Lille, France

    Hervé Leleu

  3. Tulane University, New Orleans, LA, USA

    James Moises

  4. University of the Sciences, Philadelphia, PA, USA

    Vivian G. Valdmanis

Authors
  1. Gary D. Ferrier
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  2. Hervé Leleu
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  3. James Moises
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  4. Vivian G. Valdmanis
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Correspondence to Gary D. Ferrier.

Appendix

Appendix

Table 7 Grouping of hospitals services
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Ferrier, G.D., Leleu, H., Moises, J. et al. The Focus Efficiency of U.S. Hospitals. Atl Econ J 41, 241–263 (2013). https://doi.org/10.1007/s11293-013-9385-z

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