The debate over how to solve the problem of rising health care costs has produced a vast\namount of literature in many different fields. In particular, economists have developed a\nmethod known as stochastic frontier analysis which can be used to estimate how inefficiencies\nwithin the health care industry can contribute to rising health care costs. Most studies of this\nnature estimate a best practice frontier focusing only on the long-run outcomes of hospitals,\nusing variables such as patient days and mortality rates as proxies. In this study we approach\nthe issue of hospital efficiency differently by estimating the best practice production frontier for\nthe initial treatment of patients admitted for heart attack, heart failure, or pneumonia. We are\nparticularly interested in analyzing what role (if any) hospital ownership plays in determining\ntechnical inefficiency. According to bureaucracy theory, it is hypothesized that non-profit and\nfor-profit hospitals will exhibit greater efficiency relative to public hospitals. Our results reveal\nsome evidence that private hospitals are in fact more efficient than public hospitals in two out of\nthe three medical conditions analyzed.
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