Hospital Accreditation and Financial Conditions of Public Hospitals: Evidence from Hospitals in Chubu

By Kodera, Toshiki; Yoneda, Koji | Journal of Economics and Economic Education Research, September 2015 | Go to article overview

Hospital Accreditation and Financial Conditions of Public Hospitals: Evidence from Hospitals in Chubu


Kodera, Toshiki, Yoneda, Koji, Journal of Economics and Economic Education Research


INTRODUCTION

Japan has 863 public hospitals, which provide high-quality medical services for regional communities. (1) However, 48.1% of public hospitals report a financial deficit. Local governments have introduced private company management methods to public hospitals, but such policies have not brought outstanding results. Some public hospitals close wards or abolish departments to decrease hospital deficits. Closing wards diminishes the quality of care, thereby degrading the welfare of local residents. Therefore, public hospitals should reduce financial deficits to maintain high care quality and to provide efficient medical services. To solve this problem, this study explores the links among hospital financial conditions, efficiency, and the quality of care.

Preceding studies have investigated the causes of Japanese public hospitals' persistent reports of financial deficits. Suzuki (2003) reports that hospital deficits are caused by gaps in salary and construction costs per bed between private and public hospitals. Nakajima et al. (2012) find that public hospitals lose revenue opportunities by having shortages of doctors. Moreover, Japanese public hospitals face a soft budget constraint problem: hospital managers who expect remedies for ex-post deficits do not operate their hospitals efficiently. Ishii (2006) claims that local governments subsidize hospitals to compensate for deficits. Nakayama (2004) and Nozao (2007) explore the link between subsidies for public hospitals and efficiency. They demonstrate that the efficiency of a public hospital decreases with the level of subsidy.

Data envelopment analysis (DEA) is frequently used to measure hospital efficiency (Register & Bruning, 1987; Byrnes & Valdmanis, 1994; Nan & Gunji, 1994; Aoki et al., 1996; Nakayama, 2004; Nozao, 2007; Kawaguchi, 2008). DEA uses a linear programming method and searches for the optimal combination of inputs and outputs. Nan & Gunji (1994) estimate the human resource efficiency of Japanese public hospitals. They demonstrate that 7 of 17 studied hospitals are inefficient. Kawaguchi (2008) reports a lack of efficiency improvement at public hospitals during 1999-2003.

Donabedian (1978) demonstrates that the quality of care comprises structures, processes, and outcomes. Structures encompass the quality and quantity of hospital resources or hospital systems for providing medical services. Processes denote the quality of decision-making processes. The outcomes are results of treatment. Outcome quality measures, i.e. mortality rate, are used by the preceding studies to explore the relation between the quality of care and efficiency (Deily & Mckay, 2006; Ferrier & Valdmanis, 1996). Kawaguchi et al. (2010) estimates the efficiency of Japanese hospitals controlled by the hospital standardized mortality ratio using DPC data. (2) Whereas the outcomes to measure the effect of treatments are clear, structures and processes play a major role in leading to desirable outcomes. Ferrier & Trivitt (2013) estimate the efficiency of US hospitals using process and output measures. We explore the relation between efficiency and process measures of quality in Japan.

The hospital efficiency is affected by managerial performance, i.e. medical revenue and profit. Besstremyannaya (2011) explores the relation between financial performance and efficiency, demonstrating that Japanese public hospital efficiency increases with the medical revenue ratio. However, that analysis shows no link between financial conditions of hospitals and the process measures of quality. Bazzoli et al. (2007) explore the link between the financial conditions of US hospitals and the Joint Commission on Accreditation of Health Care Organization scores which indicate the quality of care or function of hospitals. Desombre et al. (2006) demonstrate that raising the organizational flexibility of hospitals enhances financial performance. …

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