Changes in hospital efficiency after privatization

We investigated the effects of privatization on hospital efficiency in Germany. To do so, we obtained bootstrapped data envelopment analysis (DEA) efficiency scores in the first stage of our analysis and subsequently employed a difference‐in‐difference matching approach within a panel regression framework. Our findings show that conversions from public to private for‐profit status were associated with an increase in efficiency of between 2.9 and 4.9%. We defined four alternative post‐privatization periods and found that the increase in efficiency after a conversion to private for‐profit status appeared to be permanent. We also observed an increase in efficiency for the first three years after hospitals were converted to private non‐profit status, but our estimations suggest that this effect was rather transitory. Our findings also show that the efficiency gains after a conversion to private for‐profit status were achieved through substantial decreases in staffing ratios in all analyzed staff categories with the exception of physicians and administrative staff. It was also striking that the efficiency gains of hospitals converted to for‐profit status were significantly lower in the diagnosis‐related groups (DRG) era than in the pre‐DRG era. Altogether, our results suggest that converting hospitals to private for‐profit status may be an effective way to ensure the scarce resources in the hospital sector are used more efficiently.