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The Impact of the Prospective Payment System on the Technical Efficiency of Hospitals

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Abstract

In a longitudinal panel study design, 80 hospitals in Virginia were selected for analysis to test the hypothesis that the introduction of the prospective payment system (PPS) in October 1983 had helped hospitals enhance their operational performance in technical efficiency. A non-parametric method called Data Envelopment Analysis (DEA) was used to calculate and compare the efficiency scores for each peer group of hospitals (by bed size) between the year 1984 and the year 1993. Contrary to expectations, no significant difference in technical efficiency was found in each hospital peer group over the study period. Nevertheless, the case study demonstrates that if hospital managers use this analytical tool appropriately, they may spot where any organizational weakness lies and how they can improve it.

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Authors and Affiliations

  1. Department of Health Administration, Chang Jung University, Tainan, Taiwan

    Jin-Yuan Chern

  2. Department of Health Administration, Virginia Commonwealth University, Medical College of Virginia Campus, Box 980203, MCV Station, Richmond, Virginia, 23298

    Thomas T. H. Wan

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  1. Jin-Yuan Chern
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  2. Thomas T. H. Wan
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Chern, JY., Wan, T.T.H. The Impact of the Prospective Payment System on the Technical Efficiency of Hospitals. Journal of Medical Systems 24, 159–172 (2000). https://doi.org/10.1023/A:1005542324990

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