Analyzing Differences in Rural Hospital Efficiency: A Data Envelopment Analysis Approach

This study analyzes difference in efficiency among the U.S. rural hospitals using a two-stage, semi-parametric approach. Data Envelopment Analysis is used in the first stage to calculate cost, technical and allocative efficiencies of Critical Access Hospitals (CAH) and non-CAH rural hospitals. Following Simar and Wilson (2007), bootstrapped truncated regressions are used in the second stage to infer on relationship between the cost, technical and allocative inefficiencies of hospitals and some environmental variables. The estimated results show that CAHs are less cost, technical and allocative efficient than non-CAH rural hospitals. The results also show that Medicare cost-based reimbursement for CAHs has a negative effect on the efficiency of these hospitals while Medicare prospective payment system for non-CAH rural hospitals has a positive effect on hospital efficiency.