Cost and Technical Efficiency of German Hospitals: Does Ownership Matter Annika herr* Ruhr Graduate school in Economics. Ruhr-Universitat Bochum Universitat erlangen-Nurnberg This is a preprint of an article published in Health Economics 17: 1057-1071 Copyright(c)2008 John Wiley Sons Ltd http://www3.interscience.wileycom/journal/5749/home September 1, 2008 Abstract 15r the first to investigate both the technical and cost efficiency of more than general 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. The empirical results for the years from 001 to 2003 indicate that private and non-profit hospitals are on average less cost efficient and less technically efficient than publicly owned hospitals. The hospital rankings based on estimated efficiency scores turn out to be negatively correlated with average length of stay, which is highest in private hospitals. The results are derived by conducting a Stochastic Frontier Analysis(SFA) assuming both Cobb-Douglas and translog production technologies nd using a newly available and multifaceted administrative German dataset KEYWORDS: Hospital Efficiency, Ownership, Stochastic Frontier Analysi JL:C13,I11,L33 1 Introduction Tight public budgets and increasing per capita expenditures due to technological change, more chronic diseases, and an ageing population characterise the challenges faced by the german health care system today. In 2003, hospital expenditures made up 59.2 billion euro, which amounts to 2.7% of the German GDP. Since per capita expenditures for health care have grown by 50% between 1993 and 2003, debates about reforms and inefficiency of the german health care system had started in the late nineties and have resulted in several health care reforms Address: Universitat Erlangen-Nurnberg, Lehrstuhl fur Wirtschaftspolitik, Lange Gasse 20, D-90403 Nurnberg Germany. Email: annika. herr@wiso. uni-erlangen deCost and Technical Efficiency of German Hospitals: Does Ownership Matter? Annika Herr∗ Ruhr Graduate School in Economics, Ruhr-Universit¨at Bochum and Universit¨at Erlangen-N¨urnberg This is a preprint of an article published in Health Economics 17: 1057-1071. Copyright (c) 2008 John Wiley & Sons Ltd. http://www3.interscience.wiley.com/journal/5749/home September 1, 2008 Abstract This paper is the first to investigate both the technical and cost efficiency of more than 1,500 German general 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. The empirical results for the years from 2001 to 2003 indicate that private and non-profit hospitals are on average less cost efficient and less technically efficient than publicly owned hospitals. The hospital rankings based on estimated efficiency scores turn out to be negatively correlated with average length of stay, which is highest in private hospitals. The results are derived by conducting a Stochastic Frontier Analysis (SFA) assuming both Cobb-Douglas and translog production technologies and using a newly available and multifaceted administrative German dataset. Keywords: Hospital Efficiency, Ownership, Stochastic Frontier Analysis. JEL: C13, I11, L33 1 Introduction Tight public budgets and increasing per capita expenditures due to technological change, more chronic diseases, and an ageing population characterise the challenges faced by the German health care system today. In 2003, hospital expenditures made up 59.2 billion euro, which amounts to 2.7% of the German GDP. Since per capita expenditures for health care have grown by 50% between 1993 and 2003, debates about reforms and inefficiency of the German health care system had started in the late nineties and have resulted in several health care reforms. ∗Address: Universit¨at Erlangen-N¨urnberg, Lehrstuhl f¨ur Wirtschaftspolitik, Lange Gasse 20, D-90403 N¨urnberg, Germany. Email: annika.herr@wiso.uni-erlangen.de 1