Trends in labor efficiency among American hospital markets

The health care sector is one of the most labor intensive sectors of the economy. As a major player in health service delivery, hospitals must closely examine their largest cost-labor expenses. This study evaluates trends in the efficiency of health care labor among urban hospital markets. More specifically, it assesses the hypothesis that technological change and market and regulatory pressures have increased aggregate labor efficiency. Using data envelopment analysis, this study evaluates labor efficiency in 1989 and 1993 in 298 metropolitan statistical areas with two or more hospitals. Results of this study suggest that between 1989 and 1993, hospital markets generally demonstrated higher labor inefficiencies. The U.S. helath care system could save approximately $16.6 billion in 1993 by eliminating hospitals’ excessive use of health care provider labor.