Working Paper of Public Health Volume 2012 - Azienda Ospedaliera ...

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Azienda Ospedaliera Nazionale“SS. Antonio e Biagio e Cesare Arrigo”Working Paper of Public Healthnr. 16/2012main potentiality of the proposed methodology, which might be considered alternative to theDEA approach. Recalling the analysis proposed by Ferrier et al. (2006), in which authorsapply the output-based data envelopment analysis with two different assumptions (i.e. strongdisposability of outputs and weak disposability of outputs) to a sample of Pennsylvaniahospitals introducing the uncompensated care as bad output and the health production asgood ones; the DDF approach would give the possibility to consider jointly both outputs (i.e.bad and good outputs) instead of separately. This could be thought as the plus value given bythe DDF approach: the possibility to consider the uncompensated care as a bad outputsimultaneously to the suggested good outputs, proposing an alternative option for theperformance estimation. For this reason, the DDF technique appears an interesting approachfor estimating hospitals’ efficiency performance.This work proposes a two stage methodology, as suggested by Simar and Wilson (2007). Thenumber of employees and beds are considered as input, whereas the health production is‘good’ output and financial loss is ‘bad’. In the first stage, efficiency scores are computedusing input, good output and undesirable output through linear programming. In the secondstage, these scores have been regressed for some key explanatory variables to test if theallocation of employees at a higher level can negatively influence the hospital’s performance.This is exactly the main aim of this work: analyzing the impact of the hierarchicaladministrative organization on the performance of the Italian healthcare industry in terms ofefficiency, calculated considering financial losses as bad output and health production asgood outcome. Recalling the hierarchical structure suggested by Simon (1947), the authorswill find that, by reducing the relative frequency of administrative workers involved in thecontrolling group (the highest levels of the hierarchical administrative organization), theefficiency grows. In other words, considering several hierarchical levels, the allocation in thelower level, instead of the higher one, could be a strategy to increase the medical centres’efficiency, as well proposed in this paper (with good and bad outputs).In the second section, the data and methodology of this paper are proposed; whereas in thethird one the empirical analysis is presented. Finally, in the last section, some conclusionsabout the main results are discussed.2. Data and methodologyThere are two main phases in this work. In the first stage efficiency scores are calculated,introducing the directional output distance function; whereas in the second stage these values5
Azienda Ospedaliera Nazionale“SS. Antonio e Biagio e Cesare Arrigo”Working Paper of Public Healthnr. 16/2012are regressed for some key explanatory variables. In the next subsections the proposedmethodology is presented along with descriptive statistics about inputs, outputs, and keyexplanatory variables.2.1 Methodology: efficiency estimates considering bad outputs minimizationThis work applies the proposed methodology to the healthcare sector, assuming: the following vector of inputs (x), which are the necessary inputs to produce medicaltreatmentsx ( x 1,... x N) R (N = number of inputs)N a vector of good outputs (y), which are exactly the financial value of those medicaltreatmentsy ( y 1,... y M) R (M = number of good outputs)M and, finally, a vector of bad outputs, which could be thought as the hospitals’ financiallossb ( b 1,... b J) R (J = number of bad outputs)JStarting from classical assumptions on technology and input-output sets, we assume thatundesirable outputs are jointly produced with good outputs. In other words, with reference tothe analyzed sector (i.e. medical care), a financial loss might be necessary to satisfy thedemand of goods which have given prices (i.e. DRGs). This hypothesis, which is called nulljointness, is written as( y,b) P(x)and b 0 y 0(1)where P(x) is the production possibility set.Another largely accepted assumption is called the weak disposability assumption. If there aresome undesirable outputs, it is reasonable to assume that the bad outputs cannot be reducedwithout also reducing the good outputs, provided that the inputs remain unchanged. Takinghospitals into consideration, the observed financial loss cannot be reduced without reducinghealth production if the input mix remains the same; moreover, the whole production processcannot be rethought. In other words, to respect budget constraints, an optimal amount ofgoods is needed and, over that level, financial losses are inevitable. Considering the currentEuropean financial crisis and related national policies (i.e. spending review and austerity), theidea of unavoidable financial losses to satisfy the demand of medical treatments seems themost interesting and realistic. Hence, the weak disposability option has been applied.6
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