The effect of activity-based financing on hospital efficiency: A panel data analysis of DEA efficiency scores 1992-2000
2002/8: Erik Biørn Department of Economics, Terje P. Hagen & Tor Iversen, Center for Health Administration, Jon Magnussen, SINTEF Unimed Health Services Research. (PDF 206 kb)
The Activity-based financing (ABF) reform was implemented in the Norwegian hospital sector from 1 July 1997. A fraction (30 to 50 per cent) of the block grant from the state to the county councils has been replaced by a matching grant depending upon the number and composition of hospital treatments. As a result the majority of county councils have introduced activity-based contracts with their hospitals.
Biørn, Hagen, Iversen, & Magnussen predicted that hospital efficiency will increase because the benefit from cost-reducing efforts in terms of number of treated patients is increased under ABF compared with global budgets. The prediction is tested using a panel data set from the period 1992-2000. Efficiency indicators are estimated by means of data envelopment analysis (DEA) with multiple inputs and outputs. Using a variety of econometric methods, the analysis shows that the introduction of ABF has improved efficiency when measured as technical efficiency according to DEA analysis. The result is less uniform with respect to the effect on cost-efficiency. Several reasons are suggested. Keywords are poor information of costs, production-oriented drive, tight factor markets and soft budget constraints.
The evalution of the activity-based financing reform was initiated by the Norwegian Ministry of Health and Social Affairs. This is the third report focusing on the effect of activity-based financing on Norwegian hospital efficiency. Previously released reports are HERO WP 2000:1 and 2001:5.