Decomposing the productivity differences between hospitals in the Nordic countries

Previous studies indicate that Finnish hospitals have significantly higher productivity than in the other Nordic countries. Since there is no natural pairing of observations between countries we estimate productivity levels rather than a Malmquist index of productivity differences, using a pooled set of all observations as reference. We decompose the productivity levels into technical efficiency, scale efficiency and country specific possibility sets (technical frontiers). Data have been collected on operating costs and patient discharges in each diagnosis related group for all hospitals in the four major Nordic countries, Denmark, Finland, Norway and Sweden. We find that there are small differences in scale and technical efficiency between countries, but large differences in production possibilities (frontier position). The country-specific Finnish frontier is the main source of the Finnish productivity advantage. There is no statistically significant association between efficiency and status as a university or capital city hospital. The results are robust to the choice of bootstrapped data envelopment analysis or stochastic frontier analysis as frontier estimation methodology.