Abstract
Using aggregates of acute care hospitals in given metropolitan areas as decision making units (DMUs), the hospital industry's technical efficiency in 319 U.S. metropolitan areas was evaluated. The performance of hospital aggregates may be as important to solving hospital cost inefficiency and waste problems as the performance of individual hospitals themselves. This study examines the determinants of a particularly important dimension of local aggregate performance-the technical efficiency with which hospital outputs are produced. Aggregate technical efficiencies are measured using the data envelopment analysis (DEA) technique. Results indicate that at least 3% of health care costs in the gross domestic product (GDP) are due to inefficiencies created by the excessive buildup of providers. Potential planning priorities for eliminating such waste in each local hospital market are recommended.
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