Financial Performance Monitoring of the Technical Efficiency of Critical Access Hospitals: A Data Envelopment Analysis and Logistic Regression Modeling Approach

By Wilson, Asa B.; Kerr, Bernard J. et al. | Journal of Healthcare Management, May/June 2012 | Go to article overview

Financial Performance Monitoring of the Technical Efficiency of Critical Access Hospitals: A Data Envelopment Analysis and Logistic Regression Modeling Approach


Wilson, Asa B., Kerr, Bernard J., Bastian, Nathaniel D., Fulton, Lawrence V., Chustz, Mark, Journal of Healthcare Management


EXECUTIVE SUMMARY

From 1980 to 1999, rural designated hospitals dosed at a disproportionally high rate. In response to this emergent threat to healthcare access in rural settings, the Balanced Budget Act of 1997 made provisions for the creation of a new rural hospital-the critical access hospital (CAH). The conversion to CAH and the associated cost-based reimbursement scheme significantly slowed the closure rate of rural hospitals. This work investigates which methods can ensure the long-term viability of small hospitals.

This article uses a two-step design to focus on a hypothesized relationship between technical efficiency of CAHs and a recently developed set of financial monitors for these entities. The goal is to identify the financial performance measures associated with efficiency. The first step uses data envelopment analysis (DEA) to differentiate efficient from inefficient facilities within a data set of 183 CAHs. Determining DEA efficiency is an a priori categorization of hospitals in the data set as efficient or inefficient. In the second step, DEA efficiency is the categorical dependent variable (efficient = 0, inefficient = 1) in the subsequent binary logistic regression (LR) model. A set of six financial monitors selected from the array of 20 measures were the LR independent variables. We use a binary LR to test the null hypothesis that recently developed CAH financial indicators had no predictive value for categorizing a CAH as efficient or inefficient, (i.e., there is no relationship between DEA efficiency and fiscal performance).

INTRODUCTION

Background

In the dynamics of the at-large US health system, rural health facilities are generally viewed as victims of adverse trends within the total system and of challenges arising from characteristics typical of rural environments (Wood 2008). The confluence of these realities often creates the perception that rural entities are victims of their circumstances (Trinh 1999). As a "victim," the typical rural health organization is presumed to be beset by forces driving the inevitable and unavoidable specter of hospital closure or conversion (Cordes 1989; Drain, Godkin, and Valentine 2001).

The public policy response to these rural health challenges is expressed in the Federal Balanced Budget Act of 1997 (BBA) through the creation of a rural care entity - the critical access hospital (CAH). Since 1998, 1,200 rural facilities have converted to CAH status, a tactic that has reduced the closure-conversion rate of rural hospitals and has stabilized access to care. In turn, a lessening of the closure threat fosters a concern for the performance of CAHs in quality of care (Moscovice et al. 2004) and fiscal performance (Pink et al. 2006; Pink et al. 2004). The provision of cost-based reimbursement does not insulate CAHs from the historical closure threat or relieve these facilities of managerial accountability for outcomes (Fogel and Watt 2007).

Frontier Analysis Methodology

Performance remains a critical yet largely unaddressed concern for CAHs because the enabling legislation was concerned primarily with ensuring the survival of rural hospitals. However, the rural policy dialogue and research emphasis has begun to shift from survival toward managing performance. Furthermore, this step away from the rural-hospital-as-victim metaphor that has characterized prior research on rural health entities is occurring under the operations research (OR) umbrella of technical efficiency.

The research intent is to determine how well CAHs manage resources (inputs) to produce needed health services (outputs). Although data envelopment analysis (DEA) and stochastic frontier analysis (SFA) are both wellestablished OR approaches to assessing the efficiency of health service facilities (Worthington 1999; Hollingsworth 2008; Hollingsworth 2003), CAHs have received limited research attention regarding efficiency (Rosko and Mutter 2010).

DEA is a deterministic, nonparametric OR technique that calculates the economic efficiency of a given organization relative to the performance of other organizations in the same industry. …

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