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[ Recorded presentation ] Recorded presentation

Impact of financial pressure on efficiency in pennsylvania hospitals

Michael D. Rosko, PhD, Health Care Management, Widener University, One University Place, School of Business Administration, Chester, PA 19064, Vivian G. Valdmanis, PhD, Health Policy Program, University of the Sciences in Philadelphia, 600 S 43rd Street, Philadelphia, PA 19104, 215-596-7613, v.valdma@usip.edu, and Gary D. Ferrier, Ph D, Department of Economics, University of Arkansas, Business Building Room 402, Fayetteville, AR 72701.

The past decade has seen the environment of hospitals become more stringent. Two major sources of financial pressure are the growth of enrollment in managed care and increases in the number of uninsured, resulting in mounting uncompensated care burdens. Our research examines whether these pressures have shocked hospitals into more efficient performance.

We use the Battese/Coelli single-stage stochastic frontier analysis (SFA) model to estimate the impact of changes in uncompensated care, profitability, and HMO penetration on hospital cost efficiency. SFA is a parametric technique that has gained considerable popularity in hospital efficiency studies since the first U.S. hospital application was published in 1994. The model requires cost function variables (i.e., input prices, outputs, and product-mix adjusters) and inefficiency effects-variables (in this study financial pressure variables and control variables for other internal and external environmental factors). Our sample is comprised of 170 general hospitals in Pennsylvania, a state that mandates public reporting of uncompensated care and other financial information. The cost function and most inefficiency effect variables are for 2002. Since it takes time for hospitals to respond to environmental pressures, our financial pressure variables are lagged by 2 years (i.e., 2000). These variables include changes in the amount of uncompensated care provided by the hospital, managed care penetration in the hospital's market, and the hospital's profitability. SFA requires assumptions about the structure of costs and the distribution of the error-term. Preliminary analysis suggests the use of the translog cost function and the truncated-normal error distribution.

Budget reductions for hospital care for the uninsured have placed financial burdens on hospitals. Whereas there has been a substantial literature regarding the financial viability of hospitals, there has been no study that directly relates hospital financial performance in one period of time with its ability to transform resources into actual patient care. The study is currently in progress and there are no results ready to present.

Learning Objectives:

Keywords: Economic Analysis, Hospitals

Presenting author's disclosure statement:

Any relevant financial relationships? No

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Applications of Health Economics to Medicare and Hospital Efficiency

The 134th Annual Meeting & Exposition (November 4-8, 2006) of APHA