Measuring Hospital Efficiency through Data Envelopment Analysis when Policy-makers’ Preferences Matter. An Application to a sample of Italian NHS hospitals

In this paper we show how both the choice of specific constraints on input and output weights (in accordance with health care policy-makers’ preferences) and the consideration of exogenous variables outside the control of hospital management (and linked to past policy-makers’ decisions) can affect the measurement of hospital technical efficiency using the Data Envelopment Analysis (DEA). Considering these issues, the DEA method is applied to measure the efficiency of 85 (public and private) hospitals in Veneto, a Northern region of Italy. The empirical analysis allows us to verify the role of weight restrictions and of demand in measuring the efficiency of hospitals operating within a National Health Service (NHS). We find that the imposition of a lower bound on the virtual weight of acute care discharges weighted by case-mix (in order to consider policy-maker objectives) reduces average hospital efficiency. Moreover, we show that, in many cases, low efficiency scores are attributable to external factors, which are not fully controlled by the hospital management; especially for public hospitals low total efficiency scores can be mainly explained by past policy-makers’ decisions on the size of the hospitals or their role within the regional health care service. Finally, non-profit private hospitals exhibit a higher total inefficiency while both non-profit and for-profit hospitals are characterised by higher levels of scale inefficiency than public ones.