Conference Publication Details
Mandatory Fields
Zieba, M; Dineen, D; Ni Luasa S
European Health Economics Association (EuHEA) Conference
Technical Efficiency in the Nursing Home Sector in Ireland – A Stochastic Frontier Input Distance Function Approach
2016
July
Unpublished
1
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Optional Fields
Long-term care Technical efficiency Double bootstrap DEA Stochastic Frontier Analysis Input distance function Ireland
University of Hamburg, Hamburg
13-JUL-16
16-JUL-16
The aim of this paper is to compare the Stochastic Frontier Analysis (SFA) and Data Envelopment Analysis (DEA) methods as two alternative approaches to evaluate technical efficiency and efficiency factors for the nursing home sector in Ireland. DEA is a non-parametric linear programming frontier technique, and is the dominant approach used to measure efficiency in healthcare. This method does not require the explicit specification of the form of the underlying production relationship, but it has been criticised for not considering errors due to chance, measurement errors, or environmental differences; hence all deviations are attributed to the measured inefficiency. Consequently, the technical efficiency measure is sensitive to outliers and is likely to be downward biased. On the other hand, SFA requires a parametric functional form for the production frontier. This frontier is estimated using a maximum likelihood method which assumes that any deviation from the frontier is composed of two parts, one representing randomness or statistical noise and the other inefficiency. However, the parametric approach might suffer from the problem of misspecification of the functional form, and possible multicollinearity. To our knowledge, there has been very little research on the estimation of technical efficiency in the nursing home sector using the SFA approach. Moreover, we believe that this is the first empirical study that compares the SFA and DEA methods using long-term care data. Applying the conventional DEA and the homogeneous bootstrap DEA procedure we found that the efficiency levels for both public and private nursing homes in Ireland do not exceed 50 per cent on average – a finding which corroborates the DEA results obtained for the nursing home sector in other countries. Applying the SFA method, we find that the average technical efficiency is much higher and ranges above 70 per cent. We also compare the impact of environmental variables (ownership, size, age, regulatory constraints, quality of care and the case mix) on the technical efficiency scores using the two alternative approaches and we obtain similar results. Overall, the results indicate that the main drawback of the DEA method is that it does not take into account the random error which leads in our case to overestimation of inefficiency, and hence underestimation of the technical efficiency scores. Moreover, in terms of policy implications, our findings suggest that considerable inefficiencies exist in the nursing home sector in Ireland and therefore more engagement with performance measurement and improvement is needed.
Department of Economics, KBS
Grant Details