Measuring Hospital Efficiency : DEA and Stochastic Frontier Approach

In the year 2002, a new health security policy has been introduced as an effort to provide more affordable secondary health care to the uninsured. Before the new policy, for a small fee the uninsured could voluntarily join the government-run health insurance system which covered the whole family for basic health care services without any co-payment. Due to the abuse and budget balance problems, the system had been abolished. Under the new policy the uninsured can register for the so-called “Gold” card. The approved “Gold” card will entitle the holders to receive the needed treatment at designated government hospitals for only 30 baht (US$ 1=40 baht) out of pocket per visit instead of the full cost. The “Gold” card covers many catastrophic illnesses. For each registered “Gold” card, the hospitals will be allocated the fixed annual capitation fee.of about US$25 baht from the government budget. Government hospitals are the main risk bearers since they cannot deny patients. There have been big debates about the effectiveness of the new health security policy. A lot of poor uninsured have been claimed to benefit from the “Gold” cards whereas a lot of “Gold” card holding patients also complained about the low quality of health care services due to cost control by government hospitals. High risk by hospitals resulted in budget deficit, low morale of staff and possibly reduced quality in many hospitals. The new policy was meant to increase the efficiency of hospital service. This paper is trying to investigate the technical efficiency of government hospitals after the new policy, assuming the allocative efficiency will not be affected. The analysis considers health personnel and hospital beds as two major inputs, assuming that the other inputs will be proportionate to the levels of these two inputs. Morbidity of top-ten causes and infant and maternal mortality are used as main hospital inverse outputs. Other hospital outputs are simply ignored. Causes of technical inefficiencies to be investigated are the structure of hospital patients, especially the proportion of uninsured “Gold” cardholders. Hospital data by province (excluding Bangkok) in 2002 has been used in the analysis. The analysis is done in two steps. In step 1, technical efficiency index for each province is generated from hospital outputs and inputs using Data Envelopment Analysis (DEA). In step 2, a technical efficiency index function as structure of hospital patients is analyzed using truncated normal distribution. There seems to be no significant evidence that the new health security policy causes technical inefficiency of the government hospitals. Measuring Hospital Efficiency: DEA and Stochastic Frontier Approach Pongsa Pornchaiwiseskul Centre for Health Economics Faculty of Economics Chulalongkorn University I. Background of Thailand’s Health System Thailand’s first public hospital was established about 100 years ago in the reign of King Rama V or King Chulalongkorn. Since then, more government-owned hospitals had been established both in Bangkok and provincial towns. Before that, Western-style health care services had been provided by Western missionary group. Owing to the budgetary support by government, public hospitals set the out-of-pocket payment to the minimum. Only drug and laboratory test had been charged to patients. Medical personnel and equipment cost had been paid from annual government budget. Even though they were meant to provide health care services to all people, their services were not easily accessible to the very poor of the society as the services were not generally free. The population groups who enjoyed the service are mostly elite government officials and well-to-do urban people. The first social welfare scheme is free medical service for the poor in 1975. However, free medical services were not automatically given to all the poor. They were given on case-by-case basis, mostly from hospital revenue. Since then, free medical service under social welfare scheme has been extended to more poor population. In 1981 Low-Income Card (LIC) system has been introduced to identify the poor population before they are given free medical services. Their status must be verified and approved before a “poor” card can be issued. The status will be periodically verified. Even though its coverage is limited to basic medical treatment, the low-income cards have greatly improved the accessibility to medical care for the poor. In 1992 free medical services have been extended to the elderly if they are not covered by any other insurance. In 1993 children up to 12 year old without any coverage have been included into the social welfare scheme. Health care market was opened up to the private hospitals, especially in Bangkok and urban areas after health care demand outgrew the capacity of government hospitals. Declining service quality and long waiting lines at government hospitals drove well-to-do patients to seek medical services from private hospitals. The very first voluntary health insurance was offerred to general public by a private insurance firm in 1978. Table 1 illustrates the key events in the development of health security in Thailand in the past 30 years. Table 1 Key Development of Thailand’s Health Care Industry Year Key Events 1974 Worker compensation fund as a form of compulsory insurance for workers. It covered only work-related illness. 1975 First social welfare. It provided free medical care for the poor. 1978 First private health insurance. The first voluntary health insurance. 1980 Royal decree on Civil Servant Medical Benefit System (CSMBS) was passed. It provides formal nationwide health care benefit to government officials, government employees and state enterprises. Before that they had other form of employees’ fringe benefit. 1981 Low-income card for the poor was introduced. 1983 Mother and Child Voluntary Health Insurance. 1984 Government-supported Voluntary Health Car. It is covered beyond mother and child. 1990 Social Security Act was passed after 36 years since it was initiated. It first covered enterprises with 20 or more employees. Tripartite contributions. 1992 Free medical care for the elderly. 1993 Compulsary Traffic Accident Victim Protection Insurance. It is included in automobile insurance. Patients must claim from this fund before sorting to the other sources 1994 Social Security Act was extended to enterprises with 10 or more employees. 1994 Free medical care for children up to 12 years old was added to social welfare. 1998 Benefit cut for government employees narrow the benefit gap between SSA and CSMBS. Co-payment, limited hospital stays and essential drug list. 2002 National Gold card scheme was introduced for the uninsured. One who is not covered by any form of health insurance will be covered by the scheme. No joining cost but 30 baht per episode 2003 Social Security Act was extended to all enterprises including self-employed, e.g., farmers Source: Health System Research Institute, Ministry of Public Health, Thailand Cheap medical services by government hospitals for all people can be considered as a form of free health insurance with co-payment. The first formal health insurance by government is Civil Servant Medical Benefit System (CSMBS) after the royal decree was passed by the Parliament Assembly in 1980. CSMBS is health fringe benefit for government officials and permanent government employees to compensate for lower income level compared to that in the private sector. No contribution is collected from the insured and co-payment is very small or nil. CSMBS provides quite generous coverage as it covers not only the employees themselves but also their immediate family including children and parents. No other health insurance has ever covered parents of the employees. Government enterprises also provide their employees about the same health benefit. In 1998 CSMBS benefits for government officials and permanent government employees has been cut in terms of co-payment, length of stays and drug cost reimbursement to narrow the benefit gap between CSMBS and the other government-run health insurance schemes. Still, it is considered the most generous health insurance scheme administered by government. The first compulsory health insurance was dated back to 1974 when Workers’ Compensation Fund was established to provide health insurance and compensated income for work-related illnesses and accidents sufferred by the factory workers. It is the first layer of safety net for the factory workers. However, some factory workers are still not covered by this fund. Contributions come from factory workers and their employees. Social security for private sector employees has been discussed since 1954. Unfortunately, it cannot be realized until 1990 when Social Security Act was passed. It was first to cover only medical services when it was implemented. It has been later on expanded to cover unemployment and retirement benefits. It has been intended for general population but the first covered individuals are the employees of enterprises with 20 or more employees. Participation is compulsory. Employees, employers and government (Social Security Office) have to equally share the burden of insurance premium payment to the Social Security Fund which is administered by the Social Security Office according to the Act. A universal Social Security Insurance (SSI) scheme was established under the Social Security Act. Its health care coverage also includes maternal medical care and maternity leave pay. Each participating employee must first seek health care from his or her designated hospital before being referred to other providers at the cost of the designated provider. Participating hospitals will receive a fixed capitation fee payment for each participating employee. To attract more participating hospitals, government offer them re-insurance against financial risk of catastrophic illness. When the Social Security scheme started