Hospital Cost Inefficiency Research Articles

Hospital efficiency and utilization of high-technology medical equipment: A panel data analysis

ObjectiveThe association between hospital characteristics and utilization of high-tech medical equipment has received more attention for its complicated consequences on health care costs and quality. This study aims to take a step further by focusing on the relationship between hospital efficiency and utilization of Computed Tomography (CT) and Magnetic Resonance Imaging (MRI). MethodsWe selected a random sample of 131 hospitals, and conducted a questionnaire survey in each of the sampled hospitals in 2009–2013. We first estimated hospital cost inefficiency scores through stochastic frontier analysis. Then, we examined how the scores as well as population, GDP, hospital volume, annual number of surgical cases and hospital beds were associated with CT and MRI utilization rates through a series of linear regression models with hospital-level fixed effect. We also conducted a series of sensitivity checks to estimate the inefficiency scores or applying different time-lags to the scores in the regression models. ResultsThe descriptive and regression analysis revealed a positive and significant association between the scores and CT (P< 0.01) or MRI (P< 0.05) utilization rate. Regarding other covariates, hospital volume, annual number of surgical cases were significantly associated with CT (P< 0.05), not MRI (P> 0.05) utilization rate. The sensitivity checks confirmed the robustness of the results. ConclusionsUtilization of CT and MRI increased with hospital cost inefficiency. The finding has important policy implication for the ongoing hospital reform in China.

Association Between Medicare's Mandatory Hospital Value-Based Purchasing Program and Cost Inefficiency.

The Patient Protection and Affordable Care Act instituted pay-for-performance programs, including Hospital Value-Based Purchasing (HVBP), designed to encourage hospital quality and efficiency. While these programs have been evaluated with respect to their implications for care quality and financial viability, this is the first study to assess the relationship between hospitals' cost inefficiency and their participation in the programs. We estimate a translog specification of a stochastic cost frontier with controls for participation in the HVBP program and clinical and outcome quality for California hospitals for 2012-2015. The program-participation indicators' parameters imply that participants were more cost inefficient than their peers. Further, the estimated coefficients for summary process of care quality indexes for three health conditions (acute myocardial infarction, pneumonia, and heart failure) suggest that higher quality scores are associated with increased operating costs. The estimated coefficients for the outcome quality variables suggest that future determination of HVBP payment adjustments, which will depend solely on mortality rates as measures of clinical care quality, may not only be aligned with increasing healthcare quality but also reducing healthcare costs.

Cost inefficiency under financial strain: a stochastic frontier analysis of hospitals in Washington State through the Great Recession.

The importance of increasing cost efficiency for community hospitals in the United States has been underscored by the Great Recession and the ever-changing health care reimbursement environment. Previous studies have shown mixed evidence with regards to the relationship between linking hospitals' reimbursement to quality of care and cost efficiency. Moreover, current evidence suggests that not only inherently financially disadvantaged hospitals (e.g., safety-net providers), but also more financially stable providers, experienced declines to their financial viability throughout the recession. However, little is known about how hospital cost efficiency fared throughout the Great Recession. This study contributes to the literature by using stochastic frontier analysis to analyze cost inefficiency of Washington State hospitals between 2005 and 2012, with controls for patient burden of illness, hospital process of care quality, and hospital outcome quality. The quality measures included in this study function as central measures for the determination of recently implemented pay-for-performance programs. The average estimated level of hospital cost inefficiency before the Great Recession (10.4%) was lower than it was during the Great Recession (13.5%) and in its aftermath (14.1%). Further, the estimated coefficients for summary process of care quality indexes for three health conditions (acute myocardial infarction, pneumonia, and heart failure) suggest that higher quality scores are associated with increased cost inefficiency.

The Association of Hospital Cost-Inefficiency With Certificate-of-Need Regulation

Certificate-of-need (CON) regulations can promote hospital efficiency by reducing duplication of services; however, there are practical and theoretical reasons why they might be ineffective, and the empirical evidence generated has been mixed. This study compares the cost-inefficiency of urban, acute care hospitals in states with CON regulations against those in states without CON requirements. Stochastic frontier analysis was performed on pooled time-series, cross-sectional data from 1,552 hospitals in 37 states for the period 2005 to 2009 with controls for variations in hospital product mix, quality, and patient burden of illness. Average estimated cost-inefficiency was less in CON states (8.10%) than in non-CON states (12.46%). Results suggest that CON regulation may be an effective policy instrument in an era of a new medical arms race. However, broader analysis of the effects of CON regulation on efficiency, quality, access, prices, and innovation is needed before a policy recommendation can be made.

Analyzing cost efficiency of Critical Access Hospitals

The Critical Access Hospital (CAH) program has been created to protect small, financially vulnerable rural hospitals in the U.S. by granting them Medicare cost-based reimbursement. However, there have been concerns that this type of reimbursement might have a negative impact on the cost efficiency of hospitals that converted to CAH status. This study examines the impact of Medicare cost-based reimbursement, length of participation in the CAH program and other environmental variables on the cost efficiency of CAHs using a two-stage approach. In the first stage, data envelopment analysis is used to estimate cost efficiency of CAHs. In the second stage, cost efficiency is regressed on environmental variables using a parametric bootstrap of a truncated regression. The estimated results suggest that Medicare cost-based reimbursement may increase the cost inefficiency of CAHs and that longer participation in the CAH program increases hospital cost inefficiency but the extent of this inefficiency increase is lower than what previous literature showed.

U.S. hospital efficiency and adoption of health information technology

This study empirically examines the association between hospital inefficiency and the decision to introduce electronic medical records (EMR) and computerized physician order entry (CPOE) in a national sample of U.S. general hospitals in urban areas in 2006. The main research question is whether the presence of hospital cost inefficiency or other factors driving inefficiency in the production process of a hospital explain low adoption rates of health information technology (HIT) in a hospital setting. We estimated a logistic regression of HIT adoption as a function of hospital cost inefficiency scores obtained using a stochastic frontier analysis. The results demonstrate that hospitals with a greater degree of cost inefficiency were more likely to introduce EMR, suggesting that the benefits of EMR implementation in terms of improved efficiency were likely to outweigh the costs of adoption compared to hospitals that are more efficient. The results showed no association between cost inefficiency and the CPOE adoption decision.

Measuring Hospital Inefficiency: The Effects of Controlling for Quality and Patient Burden of Illness

To assess the impact of employing a variety of controls for hospital quality and patient burden of illness on the mean estimated inefficiency and relative ranking of hospitals generated by stochastic frontier analysis (SFA). This study included urban U.S. hospitals in 20 states operating in 2001. DATA DESIGN/DATA COLLECTION: We took hospital data for 1,290 hospitals from the American Hospital Association Annual Survey and the Medicare Cost Reports. We employed a variety of controls for hospital quality and patient burden of illness. Among the variables we used were a subset of the quality indicators generated from the application of the Patient Safety Indicator and Inpatient Quality Indicator modules of the Agency for Healthcare Research and Quality, Quality Indicator software to the Healthcare Cost and Utilization Project (HCUP), State Inpatient Databases. Measures of a component of patient burden of illness came from the application of the Comorbidity Software to HCUP data. We used SFA to estimate hospital cost-inefficiency. We tested key assumptions of the SFA model with likelihood ratio tests. The measures produced by the Comorbidity Software appear to account for variations in patient burden of illness that had previously been masquerading as inefficiency. Outcome measures of quality can provide useful insight into a hospital's operations but may have little impact on estimated inefficiency once controls for structural quality and patient burden of illness have been employed. Choices about controlling for quality and patient burden of illness can have a nontrivial impact on mean estimated hospital inefficiency and the relative ranking of hospitals generated by SFA.

Cost inefficiency and hospital health outcomes

This study explores the association between cost inefficiency and health outcomes in a national sample of acute-care hospitals in the US over the period 1999-2001, with health outcomes being measured by both mortality and complications rates. The empirical analysis examines health outcomes as a function of cost inefficiency and other determinants of outcomes, using stochastic frontier analysis to obtain hospital cost inefficiency scores. The results showed no systematic pattern of association between cost inefficiency and hospital health outcomes; the basic results were unchanged regardless of whether cost inefficiency was measured with or without using instrumental variables. The analysis also indicated, however, that the association between cost inefficiency and health outcomes may vary substantially across geographical regions. The study highlights the importance of distinguishing between 'good' costs that reflect the efficient use of resources and 'bad' costs that stem from waste and other forms of inefficiency. In particular, the study's results suggest that hospital programs focused on reducing cost inefficiency are unlikely to be associated with worsened hospital-level mortality or complications rates, while, on the other hand, across-the-board reductions in cost could well have adverse consequences on health outcomes by reducing efficient as well as inefficient costs.

Hospital Inefficiency: What is the Impact of Membership in Different Types of Systems?

The primary objective of this study is to assess whether systematic differences in inefficiency are associated with hospital membership in different types of systems. We employed the Battese/Coelli simultaneous stochastic frontier analysis (SFA) technique to estimate hospital cost inefficiency. Mean estimated inefficiency was 8.42%. Membership in different types of systems was related to estimated cost inefficiency (p < .05). Compared to hospitals that were members of centralized health systems, membership in centralized physician/insurance or decentralized systems was associated with decreased inefficiency; membership in independent systems was associated with increased inefficiency.

The Relationship between Hospital Cost Inefficiency and Debt Ratings

Rationale: US Hospitals rely heavily on debt financing to fund major capital investment. Hospital efficiency is at least partly determined by the amount and quality of plant and equipment it uses. As such, a hospital's access to capital and credit rating may be related to its efficiency. Objectives: This paper measures the relationship between hospital efficiency, debt issuance and debt ratings. It further explores the direction of these relationships. Methodology: Prior research indicates the possibility of a debt death spiral, wherein inefficient organizations suffer lower credit ratings which reduce their access to capital, making it harder to purchase new equipment that could make them more efficient, effectively perpetuating and deepening the cycle. Using information on US hospitals and their bond issuance decisions, this study attempts to determine if there is evidence of such death spirals. This study collects information on approximately 1,600 US hospitals, linking it to bond issuance and Medicare Cost Report data. A Heckman correction for selection is implemented because some hospitals may choose not to issue bonds. Stochastic frontier analysis is used to estimate hospital cost inefficiency. The independent variables include outputs (admissions, outpatient visits, inpatient days in non-acute care units and teaching activities), input prices (price of capital and area wage rate), and product mix adjusters (Medicare case mix index, outpatient surgery mix, risk adjusted mortality rate, the use of high-tech services and the portion of emergency outpatient visits). Inefficiency effects variables include ownership status, Herfindahl-Hirshman Index, payer mix, network affiliation, HMO penetration, bond insurance and bond rating. While technically a cross-sectional analysis, this study uses data that includes hospital bond issues lagged as much as three years behind the study period. As such, it explores the relationship between past period bond rating and current period productivity. Since higher bond ratings are associated with lower interest expense, this may enable hospitals to invest more in capital, which will help improve efficiencies. Alternatively, hospitals might have to earn those higher ratings with prior period efficiency. Results Higher bond ratings are associated with lower cost inefficiency. There is also a positive association between issuance and efficiency, indicating that hospitals that have issued debt recently have seen lower cost inefficiency. This study also finds that inefficiency increases with the passage of time since the last bond issuance, introducing at least two possible explanations. It could indicate that the efficiency benefits of capital expansion are short-lived, lasting just a few years. Alternatively, such findings would also occur if hospitals sought to improve efficiency prior to issuance in order to earn better ratings.

Cost inefficiency and mortality rates in Florida hospitals

This study examines the relationship between health outcomes and cost inefficiency in Florida hospitals over the period 1999-2001, with health outcomes measured by risk-adjusted in-hospital mortality rates. Previous research has come to conflicting conclusions regarding the relationship between costs and health outcomes. We hypothesize that these seemingly conflicting findings are due to the fact that total cost has two components--cost that reflects the best use of resources under current circumstances and cost associated with waste or inefficiency. By isolating costs due to inefficiency, we can examine directly their relationship, if any, to hospital mortality rates, and begin to assess whether policies that create incentives for hospitals to increase efficiency have adverse effects on health outcomes. We regress an in-hospital mortality index for each hospital on a measure of the hospital's cost inefficiency, obtained from a stochastic cost frontier estimation, as well as on predicted mortality and a set of variables linked to mortality performance. Our results indicate a positive and significant relationship between a hospital's mortality performance and its inefficiency: on average, a one percentage point reduction in cost inefficiency would be associated with one fewer in-hospital death per 10,000 discharges, holding patient risk and other factors constant.

Determinants and probability distribution of inefficiency in the stochastic cost frontier of Japanese hospitals

The purpose of this paper is to estimate the cost inefficiency of Japanese municipal hospitals using the stochastic cost frontier approach. It is assumed that hospital cost inefficiency has a truncated normal distribution in order to avoid the restrictive feature of the half-normal distribution. A model of hospital cost inefficiency in which the inefficiency is a function of some explanatory variables was defined. The stochastic cost frontier and the inefficiency model were estimated simultaneously. The results indicate that the half-normal distribution is not appropriate for the inefficiency distribution of municipal hospitals in Japan. It is also found (i) that the level of cost inefficiency is related to the government subsidy and the geographical location of the hospital; and (ii) that, when compared to the truncated normal cost inefficiency model, the half-normal model underestimates the marginal costs while it overestimates the cost inefficiency.

Efficiency of hospital service production in local markets: The balance sheet of U.S. medical armament

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.