HOW EFFICIENT ARE MILITARY HOSPITALS? A COMPARISON OF TECHNICAL EFFICIENCY USING STOCHASTIC FRONTIER ANALYSIS

Attainment of greater efficiency in hospital operations has become a goal highly sought after as a result of several factors including skyrocketing costs. The possibility that the different incentives associated with ownership type might affect efficiency has been covered thoroughly in the literature. There are numerous studies comparing for-profit to not-for-profit hospitals or public to private hospitals. Analysis of federal ownership, however, has been less studied. In particular, comparisons involving military hospitals are non-existent, attributed to data availability and an assumption that military hospitals are too different from civilian facilities. This dissertation employs a cross-sectional Stochastic Frontier Analysis (“SFA”) of 2006 data to compare the technical efficiency of military, for-profit, not-for-profit, and other government hospitals, controlling for differences in patients, scope of work, physicianhospital working arrangements, and other structural characteristics. Four model specifications are examined, varying the method of accounting for heterogeneity of case mix. One of the specifications uses a distance function technique to allow for specific inclusion of multiple outputs, namely inpatient and outpatient workload. Results obtained using SFA are validated using Data Envelopment Analysis (“DEA”) and compared with results produced through simple ratio analysis. Estimates of overall technical efficiency ranged from 76% to 80%. The analysis found no significant correlation between ownership category and technical efficiency. Factors found to be significantly correlated with greater technical efficiency include younger average patient age, more female patients, percentage of surgical inpatient work, percentage of circulatory system-based work, accreditation, and having all credentialed physicians (i.e. no physician employees). Pooled-vs.-partitioned analysis showed that military hospitals are indeed different, but not enough to render comparisons meaningless. Data Envelopment Analysis produced comparable individual hospital efficiency scores (correlations of approximately 0.6 between like specifications using SFA and DEA) and comparable average efficiency (~87%). Ratio analysis results were sensitive to the specific ratio analyzed. This dissertation adds to the body of literature on the relationship between ownership and hospital technical efficiency. It is the first comparison of military and civilian hospital technical efficiency