Spatial Interdependence of Hospital Efficiency in Germany

Abstract

The introduction of the hospital reimbursement based on diagnosis related groups (DRG) in 2004 has been a conspicuous attempt to increase hospital efficiency in Germany. We analyze possible determinants of hospital performance before and after the DRG introduction. A two-stage semi-parametric efficiency model allowing for spatial interdependence among hospitals is applied. We consider cross-sectional regressions for the years 2002 to 2006 and discover an increase in the magnitude of negative spatial spillovers among German hospital performance after the DRG introduction. This result confirms the expected rise of competition for low cost patients due to the reform of the financing system. Moreover, the reform has no effect on the efficiency differential between private and public hospitals. Private hospitals are still less efficient after 2004. The estimated effects of other determinants might imply an increase in efficiency of German hospitals due to the reform in the long run