Cost and technical efficiency of German hospitals: does ownership matter?

Abstract

This paper is the first to investigate both the technical and cost efficiency of more than 1500 German general hospitals. More specifically, it deals with the question how hospital efficiency varies with ownership, patient structure, and other exogenous factors, which are neither inputs to nor outputs of the production process. The empirical results for the years from 2001 to 2003 indicate that private and non-profit hospitals are on average less cost efficient and less technically efficient than publicly owned hospitals. The hospital rankings based on estimated efficiency scores turn out to be negatively correlated with average length of stay, which is highest in private hospitals. The results are derived by conducting a Stochastic Frontier Analysis assuming both Cobb-Douglas and translog production technologies and using a newly available and multifaceted administrative German data set.

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