Technical efficiency of Critical Access Hospitals: an application of the two‐stage approach with double bootstrap

The Critical Access Hospital (CAH) Program has offered Medicare cost‐based reimbursement to small hospitals that meet certain eligibility criteria to improve their financial viability and quality of care. However, cost‐based reimbursement has been associated with inefficiency in hospital operations. This study uses a two‐stage approach and bootstrap procedures to examine the effects of environmental variables on the technical efficiency of CAHs. The two‐stage approach with quality controls significantly improved statistical efficiency of parameter estimates in the second stage bootstrapped truncated regression relative to a similar model without quality controls. Overall, our results suggest that enhanced Medicare reimbursement may not have had detrimental effects on the technical efficiency of CAHs.