General
The majority of the articles (75%) surveyed pivoted on hospital-level determinants of efficiency including factors such as ownership, size, teaching status and degree of specialization, among others. The extra-hospital determinants focus on provider re-imbursement mechanisms, geographic location and competition (Table 1).
Level
|
Factor
|
No. of articles
|
Hospital-level factors
|
Ownership
|
15
|
Size
|
6
|
Specialization
|
5
|
Teaching status
|
6
|
Membership of multihospital system
|
4
|
Other factors (case-mix index, occupancy rate, outpatient-to-inpatient ratio)
|
7
|
Extra-hospital factors
|
Geographic location
|
3
|
Competition
|
5
|
Reimbursement system and provider incentives
|
5
|
Table 1 Reviewed articles by area of focus
Hospital-level factors
Ownership
The evidence regarding the effect of hospital ownership on efficiency is mixed, and depends on a number of factors including the country and geographical location of the hospital under investigation, the hospital structure and its financing schemes, in addition to the methods and the comparative data sets used in measuring efficiency [15-17]. While some studies indicate that private FP hospitals are more efficient than private NFP hospitals [18-20], others, to the contrary, show that private NFP hospitals are more efficient than private FP ones [21-23]. As profit making is the key component of the mission of FP hospitals, increased profits could be achieved through increased efficiencies [24]. Other research concluded that government/public hospitals are more technically efficient than private NFP ones and that hospitals in general facing greater financial pressure tend to improve their efficiency [25]. To the contrary, a study in Germany examining changes in efficiency after privatization demonstrated that conversion from public to private for-profit status resulted in an increase in efficiency between 2.9% and 4.9%, which also appeared to be permanent rather than a transient change [9]. Still others have concluded that there is no clear evidence that private hospital ownership – non-profit and for profits – is associated with higher efficiency compared to public hospital ownership [26, 27].
Size
Optimum hospital operational scale is a function of patient access, economies of scale and volume as a determinant of patient outcome [28]. Economies of scale characterize a situation in which fixed costs of production are higher relative to variable costs [28, 29]. Economies of scale exist when long-run average costs decrease as the scale or volume of production increases. The existence of economies of scale implies that efficiency gains could be reaped by expanding hospital size. Optimum hospital size is seen when all economies of scale have already been exploited but have not yet reached a point of diseconomies of scale, where long-run average costs start to increase as the hospital size (scale of production) increases. Smaller hospitals might be inefficient because of their inability to spread fixed (overhead) and administrative costs across a greater number of cases/patients.
In a study assessing the technical and allocative efficiency of Greek public hospitals, it was found that small hospitals were the least efficient (technical efficiency score = 0.80) in comparison with medium-sized (0.86) and large (0.90) hospitals [30]. On the other hand, in a study of Turkish hospitals, small hospitals were found to be relatively more efficient compared to medium and large hospitals and had better patient satisfaction [31]. Research suggests that a hospital can take full advantage of economies of scale when its size ranges between 200-300 beds, while diseconomies of scale can be expected to occur when a hospital size is below 200 and above 600 beds [32]. A systematic review on the scale efficiency of hospitals has reported that there is scale inefficiency when the hospital size is below 200 beds and over 600 beds [33]. This implies that from the efficiency perspective, the optimal hospital bed capacity lies between 200 and 600 beds.
Specialization vs. Economies of Scope
The range of products offered by a hospital may affect efficiency. However, the direction of influence is unpredictable. Multi-output production sometimes enables achieving economies of scope and at other times results in diseconomies of scope. Scope economies occur when the joint production of two or more products (e.g. inpatient and outpatient services) can be achieved at lower costs than the combined cost of producing each output individually. In other words, a general hospital is more efficient than a specialized hospital. The opposite effect is seen when there are diseconomies of scope.
In their study of 133 Italian hospitals, Colombi et.al. found that hospitals specialized in single treatments have higher transient inefficiency than general hospitals, indicating economies of scope [15]. In the same vein, a study in three States of the USA using stochastic frontier cost function presented some evidence that general hospitals are more efficient than specialized ones [34]. A study [35] using an extensive panel dataset in England classified sources of heterogeneity in hospital services into two:
- admission-type heterogeneity, which results from collocating the treatment of elective and emergency patients within the same hospital; and
- Service-line heterogeneity, which is the result of collocating a number of clinical specializations within the same hospital.
The findings indicate the presence of negative economies of scope across the two types of admission - increased volume of elective admission to a hospital was associated with an increase in the cost of emergency care. Moreover, for emergency admissions, there was evidence of economies of scope across service lines, that is, increased emergency activity in one service line is associated with lower cost of emergency care in other service lines. No evidence of economies of scope was found across service lines for elective admissions.
In a developing country setting, a study from Vietnam reported evidence of modest economies of scale, which differed by category of hospital – economies of scope greater in provincial general than in central general hospitals. The question about economies of scope assessed whether it was less expensive to provide both inpatient and outpatient services at the same hospital than to have a separate facility for outpatient services [36].
Teaching Status
Some research indicates that THs were found to be less efficient than NTHs due to a number of factors including the use of medical residents instead of attending physicians (staff physicians) who are more experienced in caring for patients [37, 38].Using DEA and tobit regression analysis, a study in Greece during the period of financial crisis 2009-2012 demonstrated that university hospitals are less efficient compared with non-teaching hospitals due to multiplicity of functions including teaching and research in addition to patient care [9]. Grosskopf et.al found that inefficiency attributed to congestion or the excess use of residents amounted to 20% of the total inefficiency score in teaching hospitals [39]. In the presence of congestion inefficiency, the increase of inputs over a given level results in a decrease of outputs. The teaching status of a hospital often requires conducting additional clinical tests and diagnostics for the benefit of the residents this imply that teaching hospitals are likely to use higher level of resources than nonteaching hospitals for producing the same level of output [40]. An empirical study of the determinants of hospital efficiency in Italy using four-random-component stochastic frontier model did not find statistically significant effect of teaching hospitals on transient (short-term) and permanent (long-term) inefficiency [15].
Membership of Multihospital System
Studies have indicated that hospitals that do not belong to a multihospital system or are standalone have low efficiency scores [22]. It is argued that, when a hospital is part of a system, greater efficiency is achieved, as the production of multiple products in different hospitals within the system could only be achieved by the employment of highly specialized group of managers and technical experts, and the elimination of duplicative administrative functions [41]. In a recent research, comparing performance, operating characteristics, and market environments of low- and high-efficiency hospitals in 37 states in the USA using data from the Healthcare Cost and Utilization Project, high-efficiency hospitals tended to be members of multihospital systems, non-teaching, and investor-owned [42]. The benefits of system membership depends greatly upon the characteristics of the system [43]. Moderately centralized systems were not found to have the most efficient hospitals. Instead, highest levels of efficiency were found among hospitals members in centralized physician/insurance health systems and decentralized health systems.
Other hospital-level factors
A number of studies indicate that other internal hospital factors (including the case-mix index, occupancy rate, and outpatient to inpatient ratio), which are related to managerial style and performance may all significantly affect hospital efficiency.
A research of Japanese hospitals studying the link between managerial performance and hospital efficiency found that setting and monitoring financial parameters linked to managerial performance had a significant positive relationship with hospital efficiency [44].
Another factor, the case mix index (CMI) which is usually used as a categorization scheme, to assess the level of severity/complexity of cases treated by a hospital may affect the level of hospital efficiency. A study found that one of the main factors accountable for differences in cost per case between hospitals was the difference in case mix [28].
Hospitals with higher bed occupancy rates may be more efficient. A hospital occupancy rate is usually measured as total patient days divided by total bed days available. A study of referral hospitals in Uganda indicated that bed occupancy was among the significant factors explaining variations in hospital efficiency [45]. A similar study examining the efficiency of 112 Greek public hospitals, also found a positive relationship between occupancy rate and efficiency [46].
Shifting the delivery of healthcare from a hospital setting (inpatient) to a same-day ambulatory setting (outpatient) and reduction of the average length of hospital stay are other factors that have been generally adopted by policy makers to promote efficiency and control hospital spending. This trend has seen a decline in the number of hospital beds per capita in most European countries over the past two decades [47, 48].
Extra-hospital factors
Geographic Location
According to location theory, an efficient location pattern is presumably one in which some societally predetermined level or volume of service is met at minimum total system costs of operation and travel, or alternatively, one that maximizes the volume of service within a predetermined budget constraint. [49]. A number of studies found that hospitals in relatively remote or rural areas were mostly less efficient than hospitals in urban areas. This is not surprising because the primary role of these hospitals is to provide basic healthcare services as the safety nets providers for the population under these geographical locations. As such, hospitals in rural and remote areas are not as busy as those in urban areas. This results in the presence of unused capacity including underutilized inputs such as doctors and other healthcare professionals leading to lower efficiency scores[40]. However, hospital efficiency scores may change when hospitals are evaluated in their own groups [50].
Competition
A number of studies investigated the effect of competition on hospital production and efficiency [51]. Analyzing the relationship between competition and efficiency is a difficult task due to the complexity of health systems and their structures. Furthermore, the potential role for competition in healthcare is often mixed [52]. Competition occurs when producers try to attract customers from their competitors by providing a more appealing combination of price and quality. In conventional markets, this may lead to greater efficiency; however, it is not always the case in the healthcare market [53]. A study in 2001-2004, assessing the effects of competition on efficiency among hospitals in Florida found that hospitals located in a less competitive market had lower technical efficiency scores than those in a more competitive market [54]. In contrast, research on hospital efficiency in Turkey indicates that efficiency is not significantly affected by the intensity of competition among hospitals [55].
Reimbursement Systems and Provider Incentives
The introduction of DRG-based prospective payment system was often found to have negative effects on hospitals’ length of stay and positive effects on efficiency [56]. A number of studies conducted in the US and Europe indicate that the introduction of DRGs resulted in a positive shift in efficiency [57-60].