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The debate over how to solve the problem of rising healthcare costs has produced a vast amount of literature in many different fields. In particular, economists have developed a method known as stochastic frontier analysis which can be used to estimate how inefficiencies within the health care industry can contribute to rising health care costs. Most studies of this nature estimate a best practice frontier focusing only on the long-run outcomes of hospitals, using variables such as patient days and mortality rates as proxies. In this study I approach the issue of hospital efficiency differently by estimating the best practice production frontier for the initial treatment of patients admitted for heart attack, heart failure, or pneumonia. I am particularly interested in analyzing what role (if any) hospital ownership plays in determining technical inefficiency. According to bureaucracy theory, it is hypothesized that non-profit hospitals will exhibit greater efficiency relative to public hospitals. The results reveal some evidence that private hospitals are in fact than public hospitals in two out of three medical conditions analyzed.

healthcare