Abstract
This paper focuses on acute-care local public hospitals in Japan and evaluates differences in hospital technology, as reflected in the productivity of labor specialties, physical capital and medicines, and in the impact of teaching activities and other hospital characteristics on hospital output. We use panel data quantile regressions with fixed effects to model a range of technologies for the multi-product output function of hospitals. The analysis reveals technological heterogeneity across high-output and low-output hospitals. We discover inexpedient labor/capital and labor/medicines mix, and vast opportunities for cost savings. The results contribute to scant empirical literature on variation in the hospital production.
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Data availability
The links to all publicly available datasets used in the current paper and the list of variables are provided in the appendices. The data on financial information of Japanese local public hospitals (Annual Surveys of Local Public Enterprises. Hospitals) have been publicly available on the website of the Japanese Ministry of Internal Affairs and Communications on a rolling basis for most recent years (2014 onwards as of July 2021). The data for 2002–2013 are publicly available through the Web Archiving Project of the National Diet Library (Tokyo) https://warp.da.ndl.go.jp/?_lang=en. Data for earlier years can be obtained from the Statistics Department of the Japanese Ministry of Internal Affairs and Communications upon request: https://www.stat.go.jp/library/faq/faq05/faq05b06.html. The publicly available data used in the current paper can be requested from the corresponding author.
Notes
Specifically, in this paper we use the fact that \({Q}_{\tau }(\ln y| x)=\ln ({Q}_{\tau }(y| x))\), where Qτ is the conditional τth quantile of the dependent variable y under fixed x.
The Galvao and Kato (2016) smoothing technique for reducing the asymptotic bias of the estimator is applicable for a more restricted model with quantile-independent fixed effects: it is used in the Chen and Huo (2020) estimator. Note that a different approach for creating a quantile-independent fixed effects estimator, which could apply to short panels, was proposed by Canay (2011), but the estimator was shown to have asymptotic bias (Besstremyannaya and Golovan 2019).
Galvao and Kato (2016) do not touch on the choice of the bandwidth. So our estimations follow the methodology of Koenker (2005), section 4.10.1 for computing the asymptotic covariance matrix, which specifies the bandwidth as h = κ(Φ(τ + h1) − Φ(τ − h1)). We take h1 from Bofinger (1975) and κ from Koenker (2005).
An alternative approach is the use of normalization that requires homogeneity of degree 1 in inputs. Consideration of an input distance function under this approach leads to very similar results, as both approaches approximate the same production possibility frontier.
The numerical values of the estimated coefficients depend on the order of outputs, but qualitative results concerning the typology of technologies and other findings related to the analysis with the output distance function hold regardless of the order of outputs.
The use of the translog function may cause a multicollinearity problem. Our analysis deals with the panel data regression with fixed effects, so to assess the problem we compute correlation coefficients after the within-group transformation: the subtraction of the per-hospital mean from each regressor. The values of the correlation coefficients do not exceed 0.48.
The approach assumes that the use of an electronic data system has a multiplicative effect on production. A more detailed analysis requires the inclusion of interaction terms of the variable and each input (as well as the products of pairs of inputs). However, it substantially increases the degrees of freedom and so the approach becomes unfeasible given the size of the sample available for estimations.
The asymptotic inference works poorly for extreme quantiles outside the (0.2, 0.8) range, as it is shown in Chernozhukov (2005).
Additionally, we compute the pseudo R2 statistic, which compares the full model with the model with only a constant term (the statistic is employed for evaluating the fit of pooled models in the quantile regression approach and is calculated solely for reference purposes).
The general linear hypothesis \({{{{\rm{H}}}}}_{0}:R[{{{\boldsymbol{\beta }}}}{^\prime} (\tau ),{{{\boldsymbol{\beta }}}}{^\prime} (\tau {^\prime} )]{^\prime} =r\) can be evaluated using the Wald statistic (Koenker 2005; section 3.3): \(W=(R[{{{\boldsymbol{\beta }}}}{^\prime} (\tau ),{{{\boldsymbol{\beta }}}}{^\prime} (\tau {^\prime} )]{^\prime} -r){^\prime} {(R\hat{VR}{^\prime} )}^{-1}(R[{{{\boldsymbol{\beta }}}}{^\prime} (\tau ),{{{\boldsymbol{\beta }}}}{^\prime} (\tau {^\prime} )]{^\prime} -r)\), where the matrix \(\hat{V}\) is constructed by estimating the covariance function of the stochastic process β(τ): \(\hat{V}=\left(\begin{array}{ll}\hat{V}(\tau ,\tau )&\hat{V}(\tau ,\tau {\prime} )\\ \hat{V}(\tau {\prime} ,\tau )&\hat{V}(\tau {\prime} ,\tau {\prime} )\end{array}\right)\).
Nonparametric methods construct a hull of observations (Charnes et al. 1978) and hence consider the observations on the constructed frontier as fully efficient, do not account for measurement error, are sensitive to outliers and require large samples estimations. An alternative parametric method, that of stochastic frontier analysis, imposes distributional or other restrictions on the error term (Aigner et al. 1977). See the debate in the Journal of Health Economics 1994:13(3).
Japanese per diem variant of the prospective payment system, based on diagnosis-procedure combinations, DPCs.
We focus on a group of hospitals, which may comprise the whole sample or a certain category of hospitals in terms of the number of beds: small, medium-sized, and large.
This residual is the log of total factor productivity.
The boundary condition in the cost minimization problem is essentially the equation for the production function and it ensures the production of a given amount of output. It should be noted that the estimated log of the translog production function is not globally quasiconvex, so the optimum allocation of inputs in the cost minimization problem with translog production function does not exist (Boisvert 1982). Accordingly, the approximation of the translog production function is employed in the cost minimization problem: we use the Cobb–Douglas production function which has the returns to each input equal to the mean factor returns estimated under the translog model.
The prefecture grants the status of designated hospital and financial support of 10,000 yen per each admission to a local hospital that satisfies the following requirements: (1) has over 200 beds; (2) the share of patients referred from other facilities is over 60–80%; (3) shares its beds and expensive equipment (e.g., MRI and CT scanner) with other hospitals; (4) trains local healthcare officials; and (5) has emergency status.
The standard financial need is the product of unit cost of public services, the demand for public services and adjustment coefficient (which accounts for socio-economic and geographic factors), see https://www.soumu.go.jp/main_content/000363663.pdf.
The number of hospitals is steadily decreasing since 2003 owing to merging of municipalities and restructuring of hospitals.
Commonly, hospitalization in Japan lasts no less than a week, so shorter hospital stays may reflect only preliminary diagnostics or an anticipated transfer to specialized hospital facility (Nawata et al. 2006).
Hospital stays corresponding to long-term care.
We choose 0.1 as the minimal bound for bed occupancy in order for a hospital to be considered as providing inpatient care. Mean bed occupancy in our sample is 0.75.
Takatsuka and Nishimura (2008) propose reconstructing the arithmetic mean of the number of admissions and discharges using the MHLW definitions of average length of stay (available for acute-care beds only) and bed occupancy.
Our data show that pairwise correlation coefficients between the logarithms of the numbers of physicians, nurses and other staff—after subtraction of hospital means from each variable as we deal with panel-data fixed effects regression—are in a range of 0.33–0.48 in various years.
According to Ikegami and Buchan (2014), there are certain differences in requirements for qualifying as a registered nurse or a licensed practical nurse (3 years of medical education and a national exam versus 2 years of education and a prefectural exam), but the skills of the two types are very similar overall.
This composite group of all non-doctor and non-nurse labor specialties is used in the analysis owing to the size of our sample and the total count of estimated parameters: the inclusion of technicians, administrative personnel and other workers as separate inputs would considerably increase the number of covariates due to the appearance of numerous interaction terms.
The cost of medicines per se constitutes about 70% of all medical materials at local public hospitals, and the correlation between cost of medicines and cost of all medical materials is 0.96.
Although there is a slight fall in 2003.
See Supplementary material: productivity of physicians (Supplementary Tables S26 and S27), other staff (Supplementary Tables S32 and S33), capital (Supplementary Tables S38 and S39), medicines (Supplementary Tables S41 and S42). We use the criterion that the differences across the values in adjacent years were observed at least 7 pairs of years out of 19. This way the differences across annual values cannot be attributed to random variation.
The only exception is one value of the highest output quantile for two input pairs: total labor and physical capital; and physical capital and medicines.
Observed in all output quantiles with the exception of τ = 0.8
The choice of only three groups is justified by the desire to have a sufficient number of observations in each group and to make the size of groups comparable in terms of number of hospitals.
Additionally, Becker and Murphy (1994) state that the extent of labor specialization is explained by the balance between higher productivity (owing to the division of labor) and increased costs of labor coordination.
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Acknowledgements
The paper originated from the PhD dissertation in Economics, defended by the corresponded author at Keio University, Tokyo. Access to the Annual Surveys of Local Public Enterprises (fiscal years 1999–2001) was granted to the corresponding author by Keio University Library in 2008–2010.
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The paper was prepared in the framework of the Basic Research Program of the National Research University HSE.
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Besstremyannaya, G., Golovan, S. Measuring heterogeneity in hospital productivity: a quantile regression approach. J Prod Anal 59, 15–43 (2023). https://doi.org/10.1007/s11123-022-00650-3
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DOI: https://doi.org/10.1007/s11123-022-00650-3