Title: Determinants of Cost efficiency of Finnish Hospitals: A Comparison of DEA and SFA

Authors: Miika Linna and Unto Häkkinen

Status: Systems Analysis Laboratory Research Reports A78, May 1999

Keywords: Hospitals; DEA; Stochastic frontier models; Cost efficiency

This study investigated various factors explaining the technical, allocative and cost efficiency of Finnish hospitals using parametric frontier models and nonparametric DEA models. DEA scores were correlated to the same set of variables as efficiency scores by stochastic frontier models. Specialization, specialization in expensive DRGs, sufficiently high proportion of resident physicians and increasing the relative share of physician input contributed to efficiency. In addition, some evidence of decreasing returns to scale were found.