Article ID: | iaor2007787 |
Country: | Netherlands |
Volume: | 9 |
Issue: | 2 |
Start Page Number: | 181 |
End Page Number: | 188 |
Publication Date: | May 2006 |
Journal: | Health Care Management Science |
Authors: | Rosko Michael D., Ferrier Gary D., Valdmanis Vivian G. |
Keywords: | statistics: data envelopment analysis |
Uncompensated care can create financial difficulties for hospitals. The problem is likely to worsen as the number of individuals lacking health insurance continues to grow. The objective of this study is to measure how uncompensated care affects hospitals' ability to provide the services for which they do receive compensation. Applying output-based data envelopment analysis (DEA) under various assumptions on the disposability of outputs to a sample of Pennsylvania hospitals, we find that, on average, hospitals could have produced 7% more output if they had all operated on the best-practice frontier and that uncompensated care reduced the production of other hospital outputs by 2%. Thus, even if hospitals were to operate efficiently, they might still face financial distress as a result of providing uncompensated care. The findings in our study suggest that policy makers should continue looking at ways to increase funding to hospitals providing uncompensated care while not distorting economic incentives to reduce excessive costs.