Efficiency of New Zealand’s District Health Boards at Providing Hospital Services: A stochastic frontier analysis

Abstract

The majority of secondary and tertiary healthcare services in New Zealand are provided through public hospitals managed by 20 local District Health Boards. Due to data issues and ill-judged generic public perceptions, efficiency studies are insufficient in spite of the extensive empirical literatures available. This inevitably leads to criticisms about the perverse incentives which might be created by the National Health Targets designed to improve the performance of public health services. Utilizing a multifaceted administrative hospital dataset, this is the first case study to measure both the technical and cost efficiency of New Zealand public hospitals during the period of 2011–2017. More specifically, it deals with the question of how hospital efficiency varies with respect to activities accounted for by the National Health Targets. The empirical results show no evidence that these targets are achieved at the expenses of lowering the overall efficiency of hospital operations. The national technical efficiency is averaged at 86 percent over the period and cost efficiency is 85 percent. The results are derived by stochastic input distance function and cost frontier in order to accommodate multiple outputs and limited number of census observations. Efficiency ranking is sensitive to specifications of the inefficiency error term, but reasonably robust to the choice of functional form and different proxies for capital input.