Measuring Hospital Efficiency with Data Envelopment Analysis: Nonsubstitutable vs. Substitutable Inputs and Outputs

  • Authors:

  • Darold T. Barnum;Surrey M. Walton;Karen L. Shields;Glen T. Schumock

  • Affiliations:

  • Department of Managerial Studies, University of Illinois at Chicago, Chicago, USA 60607-7123 and Department of Information & Decision Sciences, University of Illinois at Chicago, Chicago, USA and ...;Center for Pharmacoeconomic Research, Department of Pharmacy Administration, University of Illinois at Chicago, Chicago, USA and Department of Economics, University of Illinois at Chicago, Chicago ...;Sisters of St. Francis Health Services, Inc., Mishawaka, USA;Center for Pharmacoeconomic Research, Department of Pharmacy Practice, University of Illinois at Chicago, Chicago, USA

  • Venue:
  • Journal of Medical Systems
  • Year:
  • 2011

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Abstract

There is a conflict between Data Envelopment Analysis (DEA) theory's requirement that inputs (outputs) be substitutable, and the ubiquitous use of nonsubstitutable inputs and outputs in DEA applications to hospitals. This paper develops efficiency indicators valid for nonsubstitutable variables. Then, using a sample of 87 community hospitals, it compares the new measures' efficiency estimates with those of conventional DEA measures. DEA substantially overestimated the hospitals' efficiency on the average, and reported many inefficient hospitals to be efficient. Further, it greatly overestimated the efficiency of some hospitals but only slightly overestimated the efficiency of others, thus making any comparisons among hospitals questionable. These results suggest that conventional DEA models should not be used to estimate the efficiency of hospitals unless there is empirical evidence that the inputs (outputs) are substitutable. If inputs (outputs) are not substitutes, efficiency indicators valid for nonsubstitutability should be employed, or, before applying DEA, the nonsubstitutable variables should be combined using an appropriate weighting scheme or statistical methodology.