Better outcomes at lower costs? The effect of public health expenditures on hospital efficiency

David J Hunt and Charles Link

Applied Economics, 2020, vol. 52, issue 4, 400-414

Abstract: Local health departments play a critical role in the community they serve as they are the foundation of the U.S. public health system providing services such as immunizations to the less affluent and advocating for state smoking bans. Research indicates public health expenditures improve overall health of the population. Importantly, a healthier population may lead to efficiency gains for surrounding health care providers. We use a two-stage semi-parametric Data Envelopment Analysis to estimate the effects of public health spending on the technical efficiency of the surrounding hospitals. Our results indicate hospitals operating in an area with a high level of per capita public health expenditures experience gains in efficiency of approximately 1.67 percentage points relative to hospitals in low spending areas suggesting a $20 billion in annual savings due to increased hospital efficiency. We also found that the more traditional approaches using the biased estimate for technical efficiency yielded the same conclusions with less computational burdens.Abbreviation: WHO: World Health Organization; NACCHO: National Association of City and County Health Organization; DEA: Data Envelopment Analysis; CMS: Centers for Medicare and Medicaid Services; FTE: Full time equivalent; AHRF: Area Health Resource Files; MSA: Metropolitan Statistical Area; AHA: American Hospital Association

Date: 2020
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DOI: 10.1080/00036846.2019.1646405

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