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Cost and Allocative Efficiency of Irish Acute Public Hospitals

Thu, 21 Apr 2022

The 2022 KBS Spring Series continues Tuesday 26th April at 1:00 pm with a seminar by Niall Devitt.  The seminar format is informal and interactive facilitating discussion and Q&A and will take place on MS Teams.  The title and abstract are below. Click here to join the meeting

Cost and Allocative Efficiency of Irish Acute Public Hospitals

Understanding resource utilization in the public hospital system has become imperative for academics, healthcare managers and policymakers due to growing healthcare costs and the continuing record numbers of patients being recorded on trolleys. The Irish hospital system presents an interesting case study as Ireland has the second-highest health spending ratio in the OECD area, yet the recent data suggest that the level of public hospital bed occupancy is estimated to be the highest amongst OECD countries at 95%. The aim of this study is to examine to what extent the Irish acute hospital system can reduce its costs whilst maintaining the same level of output. This is achieved by estimating the cost efficiency (CE) which is the product of technical and allocative efficiencies. While technical efficiency (TE) measures the minimum utilisation of inputs given the produced output, the allocative efficiency (AE) shows the optimal (minimal) allocation of inputs given the input prices. The unique dataset contains rich information on outputs (inpatients, outpatients and day case discharges), inputs (beds, doctors, nurses and administration staff) and the respective input prices of 33 Irish acute public hospitals over 12 months from July 2017 until June 2018. A semi-parametric two-stage Data Envelopment Analysis (DEA) is applied which allows for estimating the efficiency using multiple inputs and outputs, and without the requirement to specify the functional form of production technology. Robust CE, AE and TE scores are generated using both the bootstrap and jackstrap algorithms. The findings indicate that Irish hospitals operate with the average CE of 0.80 which is below 1, indicating that they are considerably cost inefficient, while AE is derived at 0.93 and TE is 0.86. Hence, the Irish acute public hospitals could reduce their costs by 20% and still produce the same amount of output. This implies a potential for over €1 billion a year in cost savings in the Irish hospital system. The second stage DEA results present the effects of important efficiency determinants, which reveal issues with both scale and scope economies in Irish hospitals. We find that small hospitals with less than 200 beds are more technically efficient but also more cost efficient than the medium or large hospitals. Moreover, private practice, emergency patients and the hospital groups have no significant impact on cost efficiency but they have a significant effect on technical efficiency. These findings are used to derive some important policy implications for Irish acute public hospitals

All are warmly welcome, further information on the KBS Spring series can be found at https://www.ul.ie/business/research/research-events