Cost efficiency of US hospitals: a stochastic frontier approach

Abstract This study examined the impact of managed care and other environmental factors on hospital inefficiency in 1631 US hospitals during the period 1990–1996. A panel, stochastic frontier regression model was used to estimate inefficiency parameters and inefficiency scores. The results suggest that mean estimated inefficiency decreased by about 28% during the study period. Inefficiency was negatively associated with health maintenance organization (HMO) penetration and industry concentration. It was positively related with Medicare share and for‐profit ownership status. Copyright © 2001 John Wiley & Sons, Ltd.