The Cost Efficiency of Regional Public Hospitals in South Korea

Sang-Mok Kang, Moon-Hwee Kim

Department of Economics, Pusan National University, Busan, South Korea.

DOI: 10.4236/me.2014.59091                

Abstract

This paper investigates the cost efficiency (CE), technical efficiency (TE), allocative efficiency (AE), and scale efficiency (SE) over 34 regional public hospitals in South Korea from 2007 to 2010 using Data Envelopment Analysis (DEA). The CE, AE, and TE of these hospitals during the period are 0.52, 0.71, and 0.74, on average, respectively, indicating that there is a possibility to reduce their inefficiency of 48%, 29%, and 26% by reallocating the input mix or scaling input back. SE of these hospitals during the same period is 0.85, suggesting that most of the regional public hospitals do not operate under the optimal scale which is efficient relative to both constant returns to scale (CRS) and variable returns to scale (VRS) technologies. The empirical result implies that even though half of the regional public hospitals are comparatively efficient allocatively and technically, they have not been good at selecting the cost-minimal input mix. It also indicates that some hospitals have suffered losses from not having the most optimal scale.

Keywords

Regional Public Hospitals, Cost Efficiency, Allocative Efficiency, Technical Efficiency, Scale Efficiency, Data Envelopment Analysis

Conflicts of Interest

The authors declare no conflicts of interest.

References

[1]	Assistant Secretary for Planning and Evaluation (2005) Effects of Health Care Spending on the US Economy, US Department of Health and Human Services (HHS), Washington DC. http://aspe.hhs.go- v/health/costgrowth/report.pdf
[2]	OECD (2009) Health Systems in Transition. Republic of Korea Health System Review, 11.
[3]	Oh, Y.H. (2003) The Distribution of the High Price Medical Technologies in Korea and Policy Suggestions. Health-Wellfare Policy Forum, 78, 62-76.
[4]	Park, S.B. and Park, T.K. (2007) Estimation of Short-Run Hospital Cost Function and Economies Scale. KYUNG JE HAK YONGU, 55, 5-37.
[5]	Cohen, H.A. (1967) Variations in Cost among Hospitals of Different Sizes. Southern Economic Journal, 33, 355-366. http://dx.doi.org/10.2307/1055117
[6]	Feldstein, M.S. (1968) Economic Analysis for Health Service Efficiency. Markham Publishing Company, Chicago.
[7]	Lave, J.R. and Lester, B.L. (1970) Hospital Cost Functions. American Economic Review, 60, 379-395.
[8]	Lave, J.R., Lester, B.L. and Lester, P.S. (1972) Hospital Cost Estimation Controlling for Case-Mix. Applied Economics, 4, 165-180. http://dx.doi.org/10.1080/00036847200000014
[9]	Newhouse, J.P. (1970) Toward a Theory of Nonprofit Institutions: An Economic Model of a Hospital. American Economic Review, 1, 64-74.
[10]	Evans, R.G. (1971) Behavioural Cost Functions for Hospitals. Canadian Journal of Economics, 4, 198-215. http://dx.doi.org/10.2307/133526
[11]	Chiswick, B.R. (1976) Hospital Utilization: An Analysis of SMSA Differences in Occupancy Rates, Admission Rates, and Bed Rates. Explorations in Economic Research, 3, 24-76.
[12]	Bays, C.W. (1980) Specification Error in the Estimation of Hospital Cost Functions. The Review of Economics and Statistics, 62, 302-305. http://dx.doi.org/10.2307/1924762
[13]	Aletras, V.H., Jones, A. and Sheldon, T.A. (1997) Economics of Scale and Scope. In: Ferguson, B., Sheldon, T.A. and Posnett, J., Eds., Concentration and Choice in Healthcare, RSM, London.
[14]	Prior, D. and Solà, M. (2001) Measuring Productivity and Quality Changes Using Data Envelopment Analysis: An Application to Catalan Hospitals. Financial Accountability & Management, 17, 219-245. http://dx.doi.org/10.1111/1468-0408.00129
[15]	Kittelsen, S.A.C. and Magnussen, J. (2003) Economies of Scope in Norwegian Hospital Production: A DEA Analysis. Working Paper 8, Health Economics Research Programme, University of Oslo, Oslo.
[16]	Yang, D.H., Suh, W.S. and Park, K.H. (1997) A Study on Measuring Hospital Efficiency and Analyzing Its Determinants in Tertiary Hospitals: Data Envelopment Analysis. The Korean Journal of Hospital Management, 2, 183-202.
[17]	Charnes, A., Cooper, W.W. and Rhodes, E. (1978) Measuring the Efficiency of Decision-Making Units. European Journal of Operational Research, 2, 429-444. http://dx.doi.org/10.1016/0377-2217(78)90 138-8
[18]	Banker, R., Charnes, A. and Cooper, W.W. (1984) Some Models for Estimating Technical and Scale Inefficiencies in Data Envelopment Analysis. Management Science, 30, 1078-1092. http://dx.doi.org /10.1287/mnsc.30.9.1078
[19]	Kim, J.H. (2005) Factors Affecting Technical Efficiency of Hospitals and Policy Implications in Korea. Industrial Economics Association, 18, 2897-2921.
[20]	Yoo, G.R. (2007) Methodological Improvement of Measurement of Efficiency for Public Hospitals. Korean Journal of Local Government & Administration Studies, 21, 43-57.
[21]	Yoo, G.R. (2011) An Analysis of Fiscal Sustainability of Regional Public Hospital in the Jeollabuk Province: An Application to Gunsan Regional Public Hospital. Korean Journal of Local Government & Administration Studies, 25, 1-47
[22]	Farrell, M.J. (1957) The Measurement of Productive Efficiency. Journal of the Royal Statistical Society, 120, 253-290.