Determinants of hospital efficiency: A literature review

Abstract

Background: Inefficiency is a pervasive problem in health systems. The World Health Organization estimates that on average, 20%-40% of the global total health expenditure is wasted. The proportion of total health expenditure attributed to hospitals is high, which implies that improving the efficiency of hospitals will lead to more efficient health systems. This study aims to synthetize the major determinants of hospital inefficiency and to develop a framework to identify causes of inefficiency and develop multi-factor interventions to address inefficiencies.

Methods: The study is based on survey of the literature on the determinants of hospital efficiency. The studies include those that employ ratio methods of efficiency analysis, data envelopment analysis and stochastic frontier models and econometric models such as the Tobit regression to assess determinants of technical efficiency. Data was extracted in a table format categorized as those that are within the hospital, outside the hospital but within the health system and those that are outside the hospital and health system in the broader macroeconomic system and analyzed.

Results: Hospital efficiency is influenced by factors that may be internal to the hospital or external and thus could be wholly or partially out of the control of the hospital. Hospital-level characteristics that influence efficiency include ownership, size, specialization/scope economies, teaching status, membership of multihospital system and other factors such as case-mix and ratio of outpatients to inpatients. However, the effects of these variables are not definitive and consistent; all depends on the context. Factors out of the direct control of the hospital include geographic location, competition and reimbursement systems. The findings further elucidate that no single factor is effective in addressing hospital inefficiencies in isolation from others.

Conclusion: There is no one single magic formula or intervention that can be adopted by different hospitals to improve hospital efficiencies. Multiple factors influence the efficiency of hospitals. To address hospital inefficiency multi-intervention packages focusing on the hospital and its environment should be developed.