Preview

Determinants of Cost Efficiency of the Hospitals in India

Powerful Essays
Open Document
Open Document
9422 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
Determinants of Cost Efficiency of the Hospitals in India
Reprinted from

Journal of Quantitative Economics
Vol. 5 No. 2, July 2007, page 95-115

DETERMINANTS OF COST EFFICIENCY OF PUBLIC AND PRIVATE HOSPITALS OF KARNATAKA STATE IN INDIA
MAATHAI K. MATHIYAZHAGAN1
Abstract The main objective of this paper is to analyze the determinants of cost efficiency of public and private hospitals of Karnataka State in India. This is estimated through the parametric (stochastic frontier) and nonparametric (data envelopment) methods by using the Hospitals Facility Survey (2004) in Karnataka. The findings indicate that the choice of methods did not make any significant difference in the results and they are robust. The analysis infers that (a) hospitals (both public and private together in the analysis) are cost inefficient in the State, which is due to technical and allocative system of resources of the hospitals; (b) the private hospitals appear relatively less inefficient than the public hospitals; and (c) the main determinants of the technical and allocative inefficiencies of the public hospitals are inappropriate interventions of inpatient days care, share of medical personnel, beds capacity, quality indices, and choice of the locations; while in the case of private hospitals, it relates only to beds capacity and quality indices. It emphasizes that hospitals need to maintain the quality of healthcare services under the emerging competitive environment in the State; otherwise, it would be subject to financial vulnerability since private hospitals highly depend on the user fee payment of the patients. Need based financing through “capitation fee” and an effective alternative payment mechanisms such as user fee with a protected social justice criteria for poor in the public hospitals are the worth considering options in the State. Keywords: Hospital costs efficiency, stochastic frontier, data envelopment JEL classification: I1, I12, I18

1. Introduction
‘Hospital’ is an economic institution with a social role in the


References: Aingner, D., Lovell, K., and P. Schmidt (1977) “Formulation and estimation of stochastic production function models”. Journal of Econometrics, 6, 21-37. Atkinson, S and C. Cornwell (1993) “Parametric estimation of technical and allocative inefficiency with panel data”. International Economic Review, 35, 231-243. Bhat, R. (1993) “The Private/ Public Mix in health care in India”. Health Policy and Planning, 8(14), 43-56. Bhat, R., Verma, B.B., and B. Rueben (2001) Hospital efficiency: An empirical analysis of district hospitals and grants-in-aid hospitals in Gujarat. Journal of Health Management, 3 (2), 167-197. Burgess, J. and P. Wilson (1996) “Hospital ownership and technical inefficiency”. Management Science, 42, 110-123. Donabedian, A. (1966) “Evaluating the quality of medical care”. Milbank Memorial Fund Quarterly, 44 (3), 166-203. Farrel, M.J. (1957) “The measurement of productive efficiency’. Journal of the Royal Statistical Society, 120(3), 253-290. Greene, W. (1993) Econometric Analysis, Second edition, New York, Macmillan Publishing Company. Goldar K, and A.K. Agarwal (1995) “Unit costing of important cost centres in a general hospital in Delhi”. Health and Population-Perspectives and Issues, 18(3), 120-125. Hollingsworth, B., Dawson, P.J., and N. Maniadakis (1999) “Efficiency measurement of healthcare: a review of non-parametric methods and applications”, Health Care Management Science, 2, 161-172. Jacobs, R., Smith P.C., and A.Street (2006) Measuring Efficiency in Health Care: Analytic Techniques and Health Policy, Cambridge, Cambridge University Press. Jondrow, J., Lovell, C.A.K., Materov, I.S., and P. Schmidt (1982) “On the estimation of technical inefficiency in the stochastic frontier production model”. Journal of Econometrics, 19, 233-238. Krishnan A, Arora, N.K., Pandav C. S., and S.K. Kapoor (2005) “Cost of curative pediatric services in a public sector setting”. Indian Journal of Pediatrics, 72, 657-660 Kumbhakar, S.C. (1996) “Efficiency measurement with multiple outputs and multiple inputs”. The Journal of Productivity Analysis, 7, 225-255. Linna M. (1998) “Measuring hospital cost efficiency with panel data models”. Health Economics, 7, 415-427. Magnussen, J. (1996) “Efficiency measurement and the operationalization of hospital production”. Health Services Research, 31, 21-37 Mathiyazhagan, M.K. (2003a) “People’s Choice of health care provider: Policy Options for rural Karnataka in India”. Journal of Health Management, 5(1), 111-37. Mathiyazhagan, M.K. (2003b) “Rural Household Characteristics and Health Expenditure in India: An Analysis”. Journal of Social and Economic Development, 5(1), 69-89. DETERMINANTS OF COST EFFICIENCY OF PUBLIC AND PRIVATE HOSPITALS OF KARNATAKA … 115 Mathiyazhagan, M.K. (2004a) “Health Care Financing in Karnataka State: A case for Government Health Financing under Health Management Trust and Health Insurance Scheme”. Bangalore, Government of Karnataka, Ministry of Health and Family Welfare. Mathiyazhagan, M.K. (2004b) “Public Expenditure Review of Health Sector in Karnataka State”. Bangalore, Karnataka Health System Development Project, Government of Karnataka, Ministry of Health and Family Welfare. Nuanmaker, T. (1985) “Using data envelopment analysis to measure the efficiency of non-profit organizations: A critical evaluation”. Managerial and decision economics, 6, 50-58. Ozcan, Y.A. and R.D. Luke (1993) “A national study of the efficiency of hospitals in urban markets”, Health Services Research, 27(6), 719-39. Ozcan, Y.A., Luke, R.D., and C. Haksever (1992) “Ownership and organizational performance: A comparison of technical efficiency across hospital types”, Medical Care, 30, 781-94. Parikh, C and D. Karnad (1999) “Quality, cost and outcome of intensive care in a public hospital in Bombay, India” Critical Care Medicine, 27(1S), Supplement 37A. Rosko M. D. (2001) “Cost efficiency of US hospitals: a stochastic frontier approach”. Health Economics, 10, 539-551. Seiford L. (1994) A DEA bibliography (1978-1992). In Data Envelopment Analysis: Theory, Methodology and Applications, Charnes A., Cooper W. Lewin A., Seiford L. (eds). Dordrecht, Kluwer Academic Publishers, 437-469. Sexton, T.R., Leiken, A.M., Nolan, A.H., Liss, S., Hogan, A., and R. Silkman (1989) “Evaluating managerial efficiency of veterans administration medical centres using Data Envelopment Analysis’, Medical Care, 27, 1175-88. Sharma Y. (1998) “A study of cost analysis for in patient services at AIIMS hospital”, New Delhi. Thesis submitted for Master of Hospital Administration at All India Institute of Medical Sciences, New Delhi, January 1998 Shephard, R. (1970) The theory of cost and production functions. Princeton, Princeton University Press. Wagstaff A. (1989) “Estimating efficiency in the hospital sector: a comparison of three statistical cost frontier models”. Applied Economics, 21, 659-672 Wagstaff, A. and G. Lopez (1996) “Hospital costs in Catalonia: a stochastic frontier analysis”. Applied Economic Letters, 3, 471-474. Zuckerman, S., Hadley, J., and L. Lezzoni (1994) “Measuring hospital efficiency with frontier cost functions”. Journal of Health Economics, 13, 255-280. ♦♦♦
Continue Reading
View Writing Issues

You May Also Find These Documents Helpful

  • Satisfactory Essays

    Assignmen hca 311 1
    • 660 Words
    • 2 Pages

    Assignmen hca 311 1

    Capital investment decisions are among the most important decisions made by healthcare centers. The organization often determine the capacity for providing services to patient and if there is need for expansion, they commit the organizational cash towards that investment. The role of chief financial officers of the organization is always very important because he/her will reveal the capital investment strategies. Still, there is substantial variation in capital budgeting techniques, methods of risk adjustment, and the importance of qualitative considerations in investment decision making. There is also variation in delegation of investment decision making to operating units and methods of performance evaluation. Health care systems face the same challenges as other organizations in developing and implementing capital investment strategies that use consistent methods for evaluation of projects that have inconsistent aim and outcome (Smith & Wheeler, 2000)…

    • 660 Words
    • 2 Pages
    Satisfactory Essays
    Read More
  • Powerful Essays

    BrendaThomas1 HS440 01 Unit 2 Assignment
    • 1265 Words
    • 4 Pages

    BrendaThomas1 HS440 01 Unit 2 Assignment

    The role of finance in Health Care Systems, Inc. as a not-for-profit hospital is to support the provision of high quality care on a financial level. “In other words, firms may use not-for-profit status to commit themselves to provide quality by constraining their own incentives to reduce (unobserved and noncontractible) quality in favor of profits.” (Chang & Jacobson, 2010). The financial information for not-for-profit hospitals is primarily used by the donors, members, creditors and/or anybody that provides the resources for the hospital. These are considered external users who all have common interests in the organization. These common interests assess the following:…

    • 1265 Words
    • 4 Pages
    Powerful Essays
    Read More
  • Powerful Essays

    Hcs 577 Comparative Summary
    • 957 Words
    • 4 Pages

    Hcs 577 Comparative Summary

    In the health care industry there are different types program sector organizations, which has its own uniqueness. The different sectors of health care are divided amongst the for-profit, non-profit, and government organizations because they all have a common goal but the financial aspect is the same when it comes to providing care to patients. Within the three types of organization types, the financial need is collected and reported differently due to the organization common goal, financial environment and community outlook. In my research, to give a clearer picture I have chosen an organization that represents each health care sectors environment and they are: Health…

    • 957 Words
    • 4 Pages
    Powerful Essays
    Read More
  • Better Essays

    Hcs 552 Week 2 Comparison Of Economic Terms
    • 1029 Words
    • 5 Pages

    Hcs 552 Week 2 Comparison Of Economic Terms

    Look at health care from an economical view point and learn how economics has a major effect on the management of health care in our society. I chose the first two words on the list, resources and quality, along with opportunity cost, to discuss in this paper. In the discussion the terms will be defined and the relationship that the terms share in the view of market economics and the health economics will be analyzed. The question will be asked, “How are these three terms related and the effects they share on the health care community. Also what affects do they play in health care’s organizations economical…

    • 1029 Words
    • 5 Pages
    Better Essays
    Read More
  • Powerful Essays

    Ah531
    • 3543 Words
    • 15 Pages

    Ah531

    (2007). Managing capital investments at the indian health service. Indian health serive, Retrieved from http://www.google.com/url?sa=t&rct=j&q=&esrc=s&frm=1&source=web&cd=1&ved=0CC0QFjAA&url=http://www.ihs.gov/cpic/docs/IHS_AoA_How_To_Guide_.pdf&ei=xkS7UYiGOomm9ATW9ICoBA&usg=AFQjCNGIZggW_h8gK0CiINjoNWtSGXLmhQ&sig2=qNYNs1UrvGuz4SUZBILHOA&bvm=bv.47883778,d.eWU…

    • 3543 Words
    • 15 Pages
    Powerful Essays
    Read More
  • Good Essays

    Hcs 405 Reporting Practices and Ethics
    • 729 Words
    • 3 Pages

    Hcs 405 Reporting Practices and Ethics

    Curtis, P & Roupas, T. (2009) Health care Finance, the performance of Public Hospitals and…

    • 729 Words
    • 3 Pages
    Good Essays
    Read More
  • Powerful Essays

    Comparative Summary
    • 1459 Words
    • 6 Pages

    Comparative Summary

    * Health care financial environments most common are for- profit, not-for-profit, and government funding. This paper identified one entity from each of these health care financial environments, described the financial structure of each financial environment, identified policies unique to each financial environment, identified financial management practices prevalent in the financial environment, and explained why effective financial management is more difficult in health care than in other industries. The first one is Health Management Associates, Inc. founded in 1977 to own, lease and manage hospitals throughout the United States (Health Management Associates, 2011). Today HMA operates fifty nine hospitals in fifteen states with approximately eighty eight hundred licensed beds. The Company employs approximately thirty two thousands associates and hosts a total medical staff of approximately eight thousands physicians (Health Management Associates, 2011). HMA is a for profit organization with the three key features of investor-owned corporations. First, the owners (the stockholders) of the business are well defined and they exercise control of the firm by voting for directors. Second, the residual earnings of the business belong to the owners, so management is responsible only to the stockholders for the profitability of the firm. Finally, investor-owned corporations are subject to taxation at the local, state, and federal levels (Gapenski, 2008). HMA vision states they will lead the hospital industry in quality, clinical metrics, patient outcomes, and customer service. HMA will achieve top tier in the hospital industry and customer satisfaction for their patients, their physicians, and their associates (Health Management Associates, 2011).…

    • 1459 Words
    • 6 Pages
    Powerful Essays
    Read More
  • Good Essays

    Terms Comparison Of Health Care Economics
    • 1010 Words
    • 5 Pages

    Terms Comparison Of Health Care Economics

    In health care, resources include medical supplies, medical personnel, and capital inputs. Medical supplies consist of items such as patient gowns, medications, and syringes. Medical personnel include physicians, nurses, administrative staff, and technicians. Hospitals, ambulatory surgery centers, other health care facilities, and medical equipment can be categorized as capital inputs. The patients are the consumers who need health care services offered by the physicians, the producers. The goal of efficient resource allocation is to meet the infinite demands of the consumers with limited supplies. Economics allocates resources in a perfectly competitive market. However, health care operates in an imperfect market, one in which there is an offering of a diverse product with no fixed market price. The cost of services varies for consumers, suppliers, and third-party payers. The goal of health care economics and economics is the same, to obtain the most from available resources (Scott II, Solomon, & McGowan,…

    • 1010 Words
    • 5 Pages
    Good Essays
    Read More
  • Satisfactory Essays

    Naked Economics
    • 597 Words
    • 4 Pages

    Naked Economics

    Govt inefficiency 63 / Govt allocation vs private allocation 67 / Effects of regulation 69 / Effects of taxation 74 / Summary 78…

    • 597 Words
    • 4 Pages
    Satisfactory Essays
    Read More
  • Better Essays

    What Makes a Top 100 Hospital
    • 935 Words
    • 4 Pages

    What Makes a Top 100 Hospital

    The quality of care has been given first priority in all healthcare systems. Even though medical knowledge has expanded over time, with increased use of sophisticated technology and increased levels of physician trainings, the care quality, investment returns, and medical errors depict a healthy care system that is extremely underperforming (World Health Report,2000; Institute of Medicine, 2001). In the US, the healthcare system is always struggling as a result of the existing mismatch between financial flow, and the complexity of handling patients. Many measures are however being employed by the US government towards implementing cost controls, as well as improving the efficiency of health care industry. This is the underlying reason why the paper will analyze why John Hopkins Hospital is among the top 100.…

    • 935 Words
    • 4 Pages
    Better Essays
    Read More
  • Powerful Essays

    Medical
    • 4232 Words
    • 17 Pages

    Medical

    Coyne, J. S., Richards, M. T., Short, R., Shultz, K., & Singh, S. C. (2009). Hospital cost and efficiency: Do hospital size and ownership really matter? Journal of Healthcare Management, 54(3), 163-176.…

    • 4232 Words
    • 17 Pages
    Powerful Essays
    Read More
  • Powerful Essays

    Critical Access Hospitals
    • 3119 Words
    • 13 Pages

    Critical Access Hospitals

    Medicare Rural Hospital Flexibility Program and Critical Access Hospitals Rand Health. (2006). Effects of Medicare’s Prospective Payment System on the Quality of Hospital Care. Retrieved from http://www.rand.org/content/dam/rand/pubs/research_briefs/2006/RAND_RB4519-1.pdf Rural Assistance Center. (2012). CAH Frequently Asked Questions. Retrieved from http://www.raconline.org/topics/hospitals/cahfaq.php#flex Rural Assistance Center, (2012). Health Care Workforce. Retrieved from http://www.raconline.org/topics/hc_providers/ Rural Assistance Center. (2012). Hospitals. Retrieved from http://www.raconline.org/topics/hospitals/ Rural Wisconsin Health Cooperative. (2002). Eye on Health. Retrieved from http://www.rwhc.com/eoh02/September.pdf Schoenman J, and Sutton J. (2008). Impact of CAH Conversion on Hospital Finances and Mix of Inpatient Services. NORC Walsh Center for Rural Health Analysis. Retrieved from http://www.norc.org/PDFs/Walsh%20Center/Main%20Page/ImpactofCAHConversion_F inalReport_NORC.pdf Southwest Rural Health Research Center. (2003). Rural Healthy People 2010 Project. Retrieved from http://www.srph.tamhsc.edu/centers/rhp2010/publications.htm Stensland J, Davidson G, and Moscovice I. (2004). The Financial Benefits of Critical Access Hospital Conversion for FY 1999 and FY 2000 Converters. University of Minnesota Rural Health Research Center Working Paper, 51. Retrieved from http://rhrc.umn.edu/wp-content/files_mf/wpaper051.pdf Stensland J, Davidson G, and Moscovice I. (2003).The Financial Effects of Critical Access Hospital Conversion. University of Minnesota Rural Health Research Center Working Paper, 44. Retrieved from http://rhrc.umn.edu/wp-content/files_mf/workingpaper044.pdf The National Rural Health Association. (2013). Benchmark Performance for Critical Access Hospitals; The Top 100 CAH Report of Findings. Retrieved from http://www.ivantagehealth.com/wp-content/uploads/2013/03/TOP-100-CAH-Report-ofFindings.pdf Virginia Department of Health. (2012). Medicare Rural Hospital Flexibility Program (Flex). Retrieved from http://www.vdh.state.va.us/healthpolicy/primarycare/ruralhealth/flex.htm…

    • 3119 Words
    • 13 Pages
    Powerful Essays
    Read More
  • Powerful Essays

    Budget Analysis III | JKL CCRC Facility
    • 3581 Words
    • 15 Pages

    Budget Analysis III | JKL CCRC Facility

    Efficiency in healthcare operations is becoming an increasingly important objective for many decision makers. Efficiency is simply the ratio of outputs to inputs, not the quality of outputs but the lowest possible cost of production. Adequate assessment of efficiency implies the availability of standards against which actual costs may be compared. In many health care organizations, these standards may be formally introduced into the budgetary process. Thus, a given nursing unit may have an efficiency standard of 4.3 nursing hours per patient day of care delivered. This standard may then be used as a benchmark by which to evaluate the relative efficiency of the unit. If actual employment were 6.0 nursing hours per patientka day, management would be likely to reassess staffing patterns.…

    • 3581 Words
    • 15 Pages
    Powerful Essays
    Read More
  • Good Essays

    Cost Shifting In Health Care Essay
    • 579 Words
    • 3 Pages

    Cost Shifting In Health Care Essay

    To understand further, the breakdown of uncompensated care costs between private not-for-profit hospitals (4.8%) shows a slight difference than for for-profit hospitals (4.2%) (Frakt, 2014). Despite the benefits of cash flow, which is another concern for not-for-profit and for-profit hospitals as the excess cash flow for not-for-profit hospital goes towards charity and community care, where as for-profit hospitals use cash flow towards investments and paying back stock holders dividends instead of providing higher levels of uncompensated care. This effect causes health care to focus on cost shifting form means of balanced profit for the losses acquired from charitable financial…

    • 579 Words
    • 3 Pages
    Good Essays
    Read More
  • Satisfactory Essays

    U.S. health care system
    • 508 Words
    • 2 Pages

    U.S. health care system

    Efficiency With free choice and free market, people have the incentive for enjoying maximum services and claiming full benefits offered by the insurance scheme. It leads to a demand side moral hazard problem for over-consumption of services which causes market inefficiency12. Under the insurance market, hospitals are economic agents that aim at maximizing profits and it will create the…

    • 508 Words
    • 2 Pages
    Satisfactory Essays
    Read More

Related Topics