Panel Paper: Hospital Efficiency: A Factor Model Approach

Saturday, November 10, 2018
Harding - Mezz Level (Marriott Wardman Park)

*Names in bold indicate Presenter

Sebastian Linde, Grand Valley State University

Value-Based Purchasing (VBP) stresses the importance of efficiency and cost reduction as one of the four domains of quality on which hospitals are evaluated and reimbursed, however, currently only one measure (Medicare Spending per Beneficiary) is employed for the scoring of this category. The present study explores the potential use of efficiency measures obtained from stochastic frontier estimation as a potential additional measure. Using a panel consisting of 1518 hospitals for the years 1996 - 2013 (T=18), I adopt recent techniques for dealing with long, cross-sectionally dependent panel data in order to estimate cost parameters and the hospital specific efficiency measures. Interestingly, I find that hospital cost inefficiencies have been increasing during the period of 1996-2013, and that the growth in expenditures is, in part, driven by spending that increases patient satisfaction, but that does not significantly contribute to improved patient health outcomes. The implications for applying these findings within the VBP framework are discussed.