Dynamic analysis of healthcare providers’ cost efficiency

Abstract

ABSTRACT This study uses quarterly longitudinal data to examine the cost efficiency of 20 New Zealand District Health Boards between 2011 and 2018. A random-effects dynamic stochastic frontier model is applied to estimate the persistence of Health Boards’ cost efficiency while considering both observed and unobserved heterogeneity. The findings reveal that New Zealand Health Boards, on average, spent approximately 7.5% more than the estimated costs of efficient operation, primarily due to high persistence in cost inefficiency. Notably, Health Boards serving rural areas faced even higher levels of long-run cost inefficiency, resulting in an overspending of about 15% of annual budgets. The results of this study highlight that most Health Boards demonstrated excellent short-term performance relative to the long-run equilibrium level of cost inefficiency. However, the more significant concern lies in high long-run cost inefficiency within the sector attributed to structural and regulatory issues. Policymakers are urged to address these underlying problems to improve overall cost efficiency in the health sector.