The Productive Efficiency of Health Care Institutions: An Application of Chinese Hospitals

The Productive Efficiency of Health Care Institutions:

An Application of Chinese Hospitals Ying Chu NG

Department of EconomicsHong Kong Baptist University

Hong Kong, CHINA

Presented at The 7th International Conference on Data Envelopment Analysis

Fox School of Business, Temple UniversityPhiladelphia, PA, USA

July 10-12, 2009

Background

National expenditure on health care in China has been increasing over the years: 3.17% of GDP in 1980; 3.86% of GDP in 1995; 5.5% of GDP in 2004 Decline in government’s contribution to health

care provision: 30% in the late 1980s to 15% in 2002

Rise in individual’s out-of-pocket health care payment: 21% in 1990 to 50% in 2006

Background

Health care reform since mid 1980s Fall in government subsidies Greater autonomy to generate, retain and manage

surplus revenue of health care providers→Over-prescribing drugs and tests; adopting high-tech

medical treatments (drug sales contribute nearly 50% of hospitals’ income)

Improvement in efficiency and quality induced by market and economic incentives may be undermined by revenue generation imperative

Objectives

How efficient are Chinese hospitals in the post-reform period?

Any change in the productivity of Chinese hospitals?

→DEA efficiency measures and Malmquist Indices

Hospital Efficiency and Productivity Growth

See review studies by Hollingsworth (2003, 2008) Worthington (2004) O’Neill, Rauner, Heidenberger and Kraus (2

008) Emrouznejad, Parker, Barnett and Tavares

(2008)

Methodology - DEA

Input-oriented technical efficiency (TE) measures Overall TE (CRS) Scale efficiency Pure TE (VRS)

Malmquist productivity indices Productivity change Efficiency change Technical change

Data

537 hospitals in the Guangdong province of China for the period 2004-2006 304 in Pearl River Delta region 51 in the eastern region 94 in the western region 88 in the mountain area

2 outputs: outpatient cases and inpatient cases 5 inputs: the number of doctors; the number of

nurses; the number of pharmacists; the number of other medical staff and administrative workers; the number of beds

Table I Hospital Inputs by Region, 2004-06

Pearl River Delta Area

East Region West Region Mountain Area

2004

Number of Doctors

105.05(122.88)

92.10(75.45)

61.15(74.99)

73.25(61.38)

Number of Nurses

110.09(140.58)

87.73(98.40)

70.85(99.53)

86.83(81.13)

Number of Pharmacists

23.63(26.86)

25.45(22.24)

16.82(17.56)

22.98(15.81)

Number of Other Staff

44.32(50.52)

43.39(40.05)

32.88(41.71)

33.32(27.69)

Number of Beds

252.95(288.83)

190.96(177.41)

167.95(220.93)

179.98(167.25)

2005

Number of Doctors

110.01(128.88)

96.67(77.37)

61.39(74.75)

73.49(62.45)

Number of Nurses

116.56(148.02)

91.71(100.38)

73.59(103.53)

90.09(85.06)


23.91(27.33)

26.41(23.81)

16.04(16.92)

22.68(16.09)


45.49(53.44)

42.63(37.18)

36.72(47.84)

37.34(34.23)

Number of Beds

261.37(294.54)

197.24(184.32)

172.16(224.99)

173.90(153.15)





2006

Number of Doctors

132.63(147.93)

97.14(80.67)

62.88(78.76)

75.77(68.66)

Number of Nurses

148.62(190.98)

95.04(101.80)

77.93(119.06)

91.10(86.51)


27.49(29.77)

25.61(22.46)

17.02(17.82)

22.76(16.43)


53.29(63.46)

42.59(34.56)

38.15(52.61)

36.36(29.67)

Number of Beds

276.34(315.03)

202.04(184.97)

175.95(236.42)

196.59(215.41)

Sample Size 304 51 94 88

Note: Standard errors are in parenthesis.

Table II Hospital Outputs by Region, 2004-06



2004

Number of Outpatients Treated

391897.91(439225.38)

127715.73(126224.50)

90876.87(124422.62)

122547.27(128060.10)

Number of Inpatients Treated

6973.37(8388.22)

4872.14(5640.93)

3840.72(6524.18)

4435.02(4896.94)

2005


427613.89(477976.26)

134497.43(133795.61)

94867.33(134530.70)

122611.98(132067.21)


7579.26(8911.96)

5170.20(6183.20)

4085.03(6939.30)

4728.60(5252.58)

2006


462838.15(519241.50)

134095.02(134872.42)

99839.89(144136.29)

125430.20(137682.83)


8173.10(9553.34)

5738.39(6912.90)

4456.10(7592.54)

5219.15(6158.71)


Table III Efficiency Measures by Region, 2004-06


East Region

West Region

Mountain Area

2004

Overall Efficiency 0.3498 0.2928 0.2077 0.2480

Scale Efficiency 0.7168 0.7023 0.4811 0.6769

Pure Technical Efficiency 0.4880 0.4170 0.4317 0.3663

2005




2006





Hospital Efficiency

Hospitals in the Pearl River Delta are relatively efficient while hospitals in the west are relatively inefficient

About 20%-40% of inputs would be required to produce existing outputs had hospitals been efficient

Improvement in overall efficiency between 2004 and 2006

Hospital Efficiency

Pure technical inefficiency is the primary source of inefficiency

However, improvement in overall efficiency stems from improvement in pure technical efficiency for the studied period

Except hospitals in the west, scale inefficiency is relatively less serious as compared to pure technical inefficiency

Hospital Productivity Change

The Malmquist indices show that there are productivity growth of hospitals in Guangdong between 2004 and 2006

West: growth in 2004-05 and 2005-06Pearl River Delta and mountain areas:

growth in 2004-05 but deterioration in

2005-06East: low growth in 2004-05 and 2005-06

Table IV Malmquist Productivity Index and Its Decomposition by Region, 2004-06

2004-06 2004-05 2005-06

A.Pearl River Delta Area

Malmquist Index 1.0495 1.0773 0.9866

Technological Change 0.9425 1.0153 0.9401

Change in Efficiency Change in Scale Efficiency Change in Pure Technical Efficiency

1.11351.01851.0932

1.06111.02551.0346

1.04940.99321.0566

Sample Size 304 304 304

B. East Region

Malmquist Index 1.0142 1.0107 1.0073



1.04430.97341.0729

0.93040.95650.9727

1.12241.01761.1030


2004-06 2004-05 2005-06

C. West Region

Malmquist Index 1.1090 1.0285 1.0747



1.09841.00391.0942

0.96270.94131.0227

1.14101.06641.0699


D. Mountain Area

Malmquist Index 1.0658 1.0663 0.9960



1.12121.03731.0809

1.04401.03131.0124

1.07391.00581.0677


Hospital Productivity Change

Productivity growth of hospitals originates from efficiency improvement which outweighs technological regression

Technological improvement happens in 2004-05 while there is substantial regression in 2005-06

Change in efficiency echoes the yearly efficiency measures presented in Table III

Efficiency improvement mainly results from pure technical efficiency change

Concluding Remarks

Guangdong hospitals suffer technical inefficiency with improvement over time for the studied period

The efficiency performance of this sampled hospitals is far below those found in the literature

Nevertheless, health care reform in China probably exert some positive effect on hospital efficiency

Concluding Remarks

Overall productivity growth experiencing by the Guangdong hospitals is in line with those found in European studies

Same as hospitals in Ukraine and South Africa, hospitals in Guangdong face technological regression

It is suspected that efficient hospitals become less efficient while inefficient hospitals show improvement, leading to an inward shift of the froniter

Concluding Rewards

Good performers are found in the most developed region as well as the remote area, and thus economic environment may not be too important to the performance of Guangdong hospitals

Limitations Issue of case-mix in hospital services Generalization of the results to China as a

whole Variation by hospital type

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The Productive Efficiency of Health Care Institutions: An Application of Chinese Hospitals