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This version was published on April 1, 2008
Medical Care Research and Review, Vol. 65, No. 2, 131-166 (2008)
DOI: 10.1177/1077558707307580
© 2008 SAGE Publications

Reviews

Stochastic Frontier Analysis of Hospital Inefficiency

A Review of Empirical Issues and an Assessment of Robustness

Michael D. Rosko

Widener University, Chester, Pennsylvania

Ryan L. Mutter

Agency for Healthcare Research and Quality, Rockville, Maryland

Twenty stochastic frontier analysis (SFA) studies of hospital inefficiency in the United States were analyzed. Results from best-practice methods were compared against previously used methods in hospital studies to ascertain the robustness of SFA in estimating cost inefficiency. To compare past studies and analyze new data, SFA methods were varied by (a) the assumptions of the structure of costs and distribution of the error term, (b) inclusion of quality and product descriptor measures, and (c) use of simultaneous and two-stage estimation techniques. SFA results were relatively insensitive to several model variations.

Key Words: hospital efficiency • stochastic frontier analysis


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