Market structure and hospital efficiency: Evaluating potential effects of deregulation in a national health service

Abstract

In this article we examine the potential effect of market structure on hospital technical efficiency as a measure of performance controlled by ownership and regulation. This study is relevant to provide an evaluation of the potential effects of recommended and initiated deregulation policies in order to promote market reforms in the context of a European National Health Service. Our goal was reached through three main empirical stages. Firstly, using patient origin data from hospitals in the region of Catalonia in 1990, we estimated geographic hospital markets through the Elzinga--Hogarty approach, based on patient flows. Then we measured the market level of concentration using the Herfindahl--Hirschman index. Secondly, technical and scale efficiency scores for each hospital was obtained specifying a Data Envelopment Analysis. According to the data nearly two--thirds of the hospitals operate under the production frontier with an average efficiency score of 0.841. Finally, the determinants of the efficiency scores were investigated using a censored regression model. Special attention was paid to test the hypothesis that there is an efficiency improvement in more competitive markets. The results suggest that the number of competitors in the market contributes positively to technical efficiency and there is some evidence that the differences in efficiency scores are attributed to several environmental factors such as ownership, market structure and regulation effects.Geographic markets, market concentration, technical efficiency, data envelopment analysis, censored regression model