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Technical Efficiency of Provincial Public Healthcare in South Africa

Victor Ngobeni (), Marthinus Breitenbach () and Goodness Aye
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Victor Ngobeni: Department of Economics, University of Pretoria. Address: University of Pretoria. Lynnwood Rd, Hatfield, Pretoria, 0002
Goodness Aye: Department of Economics, University of Pretoria. Address: University of Pretoria. Lynnwood Rd, Hatfield, Pretoria, 0002

No 202013, Working Papers from University of Pretoria, Department of Economics

Abstract: Forty-nine million people or 83 per cent of the entire population of 59 million rely on the public healthcare system in South Africa. Coupled with a shortage of medical professionals, high migration, inequality and unemployment; healthcare provision is under extreme pressure. Due to negligence by the health professionals, provincial health departments had medical-legal claims estimated at R80 billion in 2017/18. In the same period, provincial health spending accounted for 33 per cent of total provincial expenditure of R570.3 billion or 6 per cent of South Africa’s Gross Domestic Product. Despite this, healthcare outcomes are poor and provinces are inefficient in the use of the allocated funds. This warrants a scientific investigation into the technical efficiency of the public health system. The study uses Data Envelopment Analysis (DEA) to assess the technical efficiency of the nine South African provinces in the provision of healthcare. This is achieved by determining, assessing and comparing ways that individual provinces can benchmark their performance against peers to improve efficiency scores. DEA compares firms operating in homogenous conditions in the usage of multiple inputs to produce multiple outputs. Therefore, DEA is ideal for measuring the technical efficiency of provinces in the provision of public healthcare. In DEA methodology, the firms with scores of 100 per cent are technically efficient and those with scores lower than 100 per cent are technically inefficient. This study considers six DEA models using the 2017/18 total health spending and health staff as inputs and the infant mortality rate as an output. The first three models assume the constant returns to scale (CRS) while the last three use the variable return to scale (VRS) both with an input-minimisation objective. The study found the mean technical efficiency scores ranging from 35.7 to 87.2 per cent between the Health Models 1 and 6. Therefore, inefficient provinces could improve the use of inputs within a range of 64.3 and 20.8 per cent. The Gauteng province defines the technical efficiency frontiers in all the six models. The second-best performing province is the North West province. Other provinces like KwaZulu-Natal, Limpopo and the Eastern Cape only perform well under the VRS. The other three provinces are inefficient. Based on the VRS Models 4 to 6, the study presents three policy options. Policy option 1 (Model 4): the efficiency gains from addressing health expenditure wastage in four inefficient provinces amounts to R17 billion. Policy option 2 (Model 5): the potential savings from the same provinces could be obtained from reducing 17 000 health personnel, advisably, in non-core areas. In terms of Policy option 3 (Model 6), three inefficient provinces should reduce 6 940 health workers while the same provinces, inclusive of KwaZulu-Natal could realise health expenditure savings of R61 million. The potential resource savings from improving the efficiency of the inefficient provinces could be used to refurbish and build more hospitals to alleviate pressure on the public health system. This could also reduce the per capita numbers per public hospital and perhaps their performance as overcrowding is reportedly negatively affecting their performance and health outcomes. The potential savings could also be used to appoint and train medical practitioners, specialists and researchers to reduce the alarming numbers of medical legal claims. Given the existing challenges, South Africa is not ready to implement the National Health Insurance (NHI) Scheme, as it requires additional financial and human resources. Instead, huge improvements in public healthcare provision could be achieved by re-allocating the resources ‘saved’ through efficiency measures by increasing the quality of public healthcare and extending healthcare to more recipients.

Keywords: Expenditure; Data Envelopment Analysis; Healthcare; Inefficiency; Technical Efficiency (search for similar items in EconPapers)
JEL-codes: C6 D2 I1 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2020-01
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