Measuring Hospital Efficiency: DEA and Stochastic Frontier Approaches

1. International Symposium on Health Care Systems in Asia January 22, 2005 Hitotsubashi Memorial Hall, Hitotsubashi University Tokyo, Japan Measuring Hospital Efficiency: DEA and Stochastic Frontier Approaches Pongsa Pornchaiwiseskul Centre for Health Economics, Faculty of Economics Chulalongkorn University

2. Content • Paper’s research questions and objectives • Research Methodology • Conceptual Framework • Models • Brief Results • Conclusion of Research Study

3. Health Insurance Categories All the existing forms of government-administered general health insurance can be categorized as follows: • Government Employee Benefit (CSMBS) • National Social Security System by SSA • Social Welfare • Voluntary Health Card (non-existent after 2003) • National Health Security

4. Government Employee Benefit • full coverage to compensate low salary pay • zero employee contribution • also cover immediate family (parent, spouse and children) • full reimbursement • benefit has been cut recently but it is still considered a privilege • alarmingly rising cost

5. Social Security System (SSS) • employee/employer/government contribution • limited coverage • start in 1990 for employers with at least 20 employees. Now extended to self-employed or small employers • administered by government agency • service provider payment by capitation basis • cost containment pressure on provider • possible reimbursement for catastrophic illness

6. Social Welfare Card • First covered only the poor. • Benefit was not automatic. Poor must be identified on case-by-case basis. • Low-income Card system introduced. The poor must apply for the benefit before they get ill • limited benefit • Now cover the elderly and school children

7. Voluntary Health Card • start in 1984 known as Family Health Card • for those with no other forms of insurance • Only 500 Baht will entitle the cardholder and family for limited health care services at government-owned health centers/hospitals • providers will receive fixed capitation fee supplement from government budget. • cost containment and abuse problems

8. National Health Security (1) • meant to replace Family Health Card but to provide same coverage as SSS • start in 2002 known as 30-baht scheme. Now called “Gold” Card. • No cost for the Card. But user cost is 30 Baht/episode which is below average cost. • Providers are supplemented by fixed capitation fee from government budget. • Make the services affordable to many poor

9. National Health Security (2) • cost containment pressure on providers • financial risks on providers/staff. Unpaid or uncertain capitation payment by government • alarming high turnover of staff. Doctors moved from public sector to private sector • few privately-owned providers participated due to low capitation payment. • More complaints about quality of health care services

10. Health Insurance Coverage

11. Research Questions • Did the recent health care reforms really improve efficiency of health care system? Many tertiary care hospitals have complained about high cost of servicing SSS and Gold card patients while patients also complained about the declining service quality. • Is inefficiency related to capitation payment? Quality complaints seem to inversely vary with the capitation payment.

12. Research Objectives Main Objective • To determine the effects of customer/patient types on the efficiency or inefficiency of provincial hospitals. Specific Objectives • To estimate the production function for fully efficient provincial hospitals • To estimate output indices for multiple service outputs of hospitals

13. Scope of Study • Aggregate Provincial hospital service level • 72 cross-sectional data by province in 2002. Bangkok Metropolitan Area excluded.

14. Assumptions (1) • Constant return-to-scale Cobb-Douglas production. Hospitals in the province can be aggregated to a representative hospital • medical doctors and patient beds are two inputs to be considered. Other inputs are assumed to be complement of these two inputs

15. Assumptions (2) • The following are considered multiple outputs: • birth cases • inpatient-days • outpatient visits by 21 causes of illness • Hospital inefficiency could be due to patient types. • Allocative efficiency is assumed. Inefficiency is purely technical.

16. Conceptual Framework (1) • Determination of Output Envelope Multiple hospital outputs are to be aggregated as a single output index. Inpatient-days will be treated as output numeraire. That is, all the other outputs will be converted to numeraire equivalence.

17. Conceptual Framework (2) Y2 Production Possibility Frontier (given input X) C B Y1 Equivalence of output bundle A A D Y1 (Numeraire)

18. Conceptual Framework (3) • Data Envelopment Analysis (DEA) model is used to analyze the cross-sectional data to estimate the aggregate hospital production output for each of the 72 provinces. • The difference between the ideal production output and the aggregate provincial output is due to pure uncertainty and technical inefficiency of the hospitals

19. Conceptual Framework (4) B Y A’ Uncertainty component Mean Production Function of Fully Efficient Hospital B’ Inefficiency component A X

20. Conceptual Framework (5) • Aggregate output of 72 provinces will be used to estimate the frontier production or the production of the fully efficient hospitals. • Stochastic Production Frontier Model will be used to estimate the production function of the CRS fully efficient hospitals • Technical inefficiency is due to patient types.

21. Model (1) DEA Model (Aigner, Lovell and Schmidt, 1977) for CRS hospital i with multiple outputs and inputs is the following LP problem:

22. Model (2)

23. Model (3) where MDi = log of number of medical doctors employed by province i BEDi = log of number of inpatient beds employed by province i Y1i = log of inpatient-days in province i Y2i = log of number of birth cases in province i

24. Model (4) Y3mi = log of number of OPD visits by cause of illness m in province i,m=1,..,21 Aggregate Output measured in terms of Y1

25. Model (5) Stochastic Frontier Model (Coelli, 1996) for CRS Cobb-Douglas production function of hospital i

26. Model (5) ei = pure uncertainty component ui = non-negative inefficiency GCi = log of number of Gold Cardholders in Province i WCi = log of number of Welfare Cardholders in Province i SSi = log of number of SS insured in Province i GVi = log of number of privileged government employees in Province i

27. Empirical Results (1) Aggregate output for selected provinces according DEA

28. Empirical Results (2) ML estimates for SF Model

29. Key Conclusions 1) Gold card policy and Social Security schemes do not seem to significantly hurt hospital efficiency 2) Welfare cardholders and privilege government employees cause opposite pressure on the hospital efficiency. Even though hospital expenditure on welfare cardholders will be reimbursed, it is not very welcome.

30. Key References Aigner, D.J., C.A.K. Lovell and P. Schmidt (1977), “Formulation and Estimation Stochastic Frontier Production Function Models”, Journal of Econometrics, 6, 21-37 Coelli, T.J. (1996), “A Guide to FRONTIER Version 4.1: A Computer Program for Frontier Production Function Eestimation”, CEPA Working Paper 96/07, Department of Econometrics, University of New England, Armidale