Does Higher Cost Inefficiency Imply Higher Profit Inefficiency? - Evidence on Inefficiency and Ownership of German Hospitals

Abstract

This paper investigates cost and profit efficiency of German hospitals. More specifically, it deals with the question how hospital efficiency varies with ownership, patient structure and other exogenous factors, which are neither inputs nor outputs of the production process. We conduct a Stochastic Frontier Analysis (SFA) on a multifaceted administrative German dataset combined with the balance sheets of 374 hospitals for the years 2002 to 2005.The results indicate that private (for-profit) and (private) non-profit hospitals are on average less cost efficient but more profit efficient than publicly owned hospitals.Hospital efficiency, ownership, stochastic frontier analysis, profit function