Cost efficiency and scale economies in general dental practices in the US: a non‐parametric and parametric analysis of Colorado data

Cost efficiency and scale economies in general dental practices in the US: a non‐parametric and parametric analysis of Colorado data

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Article ID: iaor20132551
Volume: 64
Issue: 5
Start Page Number: 762
End Page Number: 774
Publication Date: May 2013
Journal: Journal of the Operational Research Society
Authors: ,
Keywords: statistics: data envelopment analysis
Abstract:

This paper uses both the non‐parametric method of data envelopment analysis (DEA) and the econometric method of stochastic frontier analysis (SFA) to study the production technology and cost efficiency of the US dental care industry using practice level data. The American Dental Association 2006 survey data for a number of general dental practices in the state of Colorado in the US are used for the empirical analysis. The findings suggest that the cost efficiency score is between 0.79 and 0.87, on average, and the cost inefficiency is mostly due to allocative rather than technical inefficiency. The optimal output level for a dental practice to fully exploit the economies of scale is estimated to be at $1.68 million. Average cost at this level of output is 50.6 cents for each dollar of gross billing generated. The DEA and SFA approaches provide generally consistent results.

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