Decomposing hospital productivity changes, 1985-1988: A nonparametric malmquist approach

Annual data on U.S. hospitals from 1985-1988 are evaluated by ownership type-profit, nonprofit, state and local government, and U.S. Department of Veterans Affairs (VA)-for changes in hospital productivity over time. Distance functions are used to measure Malmquist indices of productivity change, which are then decomposed into indices of efficiency change and technology change. In contrast to previous studies using this approach, we allow for variable returns to scale and use both input and output orientations. We find that changes in technology dominate changes in inefficiency in determining changes in productivity.