Review of efficiency measurement methodologies to inform hospital resource allocation decisions in NSW: a rapid review: an evidence review brokered by the Sax Institute

O'Donnell, Chris and Nguyen, Kim (2011) Review of efficiency measurement methodologies to inform hospital resource allocation decisions in NSW: a rapid review: an evidence review brokered by the Sax Institute. , , The Sax Institute.

Author O'Donnell, Chris
Nguyen, Kim
Title Review of efficiency measurement methodologies to inform hospital resource allocation decisions in NSW: a rapid review: an evidence review brokered by the Sax Institute
Institution The Sax Institute
Publication date 2011
Total pages 50
Publisher The Sax Institute
Language eng
Formatted Abstract/Summary
The Centre for Efficiency and Productivity Analysis conducted this review to identify efficiency modelling methodologies and data considerations relevant to Australia and of use to NSW  Health and the Independent Hospital Pricing Authority in driving decisions about hospital  resource allocation. Key findings include:

• Measures of efficiency relevant to health funding and price benchmarking decisions  include cost efficiency, input-oriented technical efficiency and cost-allocative efficiency.  Estimating these measures of efficiency involves identifying the input-output combinations  that are technically feasible, ie the production technology.
• There are two main efficiency modelling techniques to estimate the production  technology: stochastic frontier analysis and data envelopment analysis. The standard stochastic frontier analysis model allows for statistical noise and can be used to compute measures of reliability (eg standard errors) for efficiency estimates. Data envelopment  analysis can be used to identify efficient firms (peers), which inefficient firms should study in their efforts to become more efficient. A weakness of the standard data envelopment analysis model is that it does not allow for statistical noise.
• There were more than 100 applications of stochastic frontier analysis and data  envelopment analysis modelling techniques to hospital data. The most comprehensive and  relevant applications were conducted by the Productivity Commission in 2009 and 2010.  The Commission found that, on average, Australian hospitals can potentially reduce inputs
by 10% and still produce the same quantities and types of outputs.  
• The Commission identified a number of data problems that will limit the use of efficiency modelling techniques (and any other technique) in informing hospital funding and price benchmarking decisions. These include: a lack of consistent data on capital costs (especially for public hospitals); the medical costs of doctors exercising their rights of practice in public hospitals; staffed beds in public and private hospitals; and measures of quality (including rates of hospital-acquired infections).
• Few studies have used efficiency measurement methods to inform health funding decisions. One study used data envelopment analysis to estimate efficient budgets for New Zealand hospitals in a way that accounts for variables such as ethnicity, rurality, clinical complexity and out-of-catchment tertiary care.
• Data envelopment analysis and stochastic frontier analysis can be used to estimate the minimum cost of providing a bundle of hospital services in ways that account for variations in output quantities and types, input prices, technical change, input and output quality, the production environment, and inefficiency.
• Stochastic frontier analysis can also be used to estimate the marginal cost of providing individual hospital services. If the efficient price of a bundle of hospital services is the minimum cost of providing those services, then the efficient price of a particular hospital service is its marginal cost. 

Document type: Department Technical Report
Collection: School of Economics Publications
 
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Created: Fri, 28 Mar 2014, 12:16:07 EST by Alys Hohnen on behalf of School of Economics