Hospital Reform and Hospital Efficiency - A Nordic Comparative Study

This study investigates whether the hospital reform has led to a situation where the development of hospital productivity in Norway deviates from that of the other Nordic countries, Finland, Sweden and Denmark. The analysis is performed in two steps. First, using DEA a common best practice frontier is established for the four countries for the period 1999 to 2004. Bootstrapping techniques are applied to the obtained measures, and these are regressed on a set of explanatory variables in order to separate the effect of the hospital reform from the effects of other structural, financial and organizational variables. There are several challenges when comparing hospital efficiency across countries, most notably establishing a data set with common input and output definitions. In this study we use hospital discharge data grouped in diagnosis related groups (DRGs). A common set of DRGs are defined, and weighted using information about a weighted average of country specific relative costs. Inputs are measured as operating expenses, exclusive of capital, and deflated using PPPs and a specially constructed wage index. We have been able to collect data from Norway and Finland for the period 1999-2004, from Sweden for the period 2001-2004 and from Denmark for 2002. A total of more than 700 hospital observations are thus included in the analyses. In order to obtain measures of hospital efficiency we use data envelopment analysis, constructing a pooled best practice frontier. In the second stage analyses a fixed effects panel data model is applied. Explanatory variables include hospital case-mix index, a measure of expected vs. actual length of stay, the share of activity based financing and a dummy to capture the effects of the Norwegian hospital reform. Results indicate that the hospital reform in Norway seems to have improved the level of efficiency in the magnitude of approximately 4%