Market Structure and Technical Efficiency in the Hospital Services Industry: a DEA Approach

This article uses data envelopment analysis and multiple regression analysis to examine empirically the impact of various market-structure elements on the technical efficiency of the hospital services industry in various metropolitan areas of the United States. Market-structure elements include the degree of rivalry among hospitals, extent of HMO activity, and health insurer concentration. The DEA results show the typical hospital services industry experienced 11 percent inefficiency in 1999. Moreover, multiple regression analysis indicates the level of technical efficiency varied directly across metropolitan hospital services industries in response to greater HMO activity and private health insurer concentration in the state. The analysis suggests the degree of rivalry among hospitals had no marginal effect on technical efficiency at the industry level. Evidence also implies that the presence of a state Certificate of Need law was not associated with a greater degree of inefficiency in the typical metropolitan hospital services industry.