Efficiency Disparities among Community Hospitals in Tennessee: Do Size, Location, Ownership, and Network Matter?

This study examined the impact of ownership, size, location, and network on the relative technical efficiency of community hospitals in Tennessee for the 2002–2006 period, by applying data envelopment analysis (DEA) to measure technical efficiency (decomposed into scale efficiency and pure technical efficiency). Data envelopment analysis results indicate that medium-size hospitals (126–250 beds) are more efficient than their counterparts. Interestingly, public hospitals are significantly more efficient than private and nonprofit hospitals in Tennessee, and rural hospitals are more efficient than urban hospitals. This is the first study to investigate whether hospital networks with other health care providers affect hospital efficiency. Results indicate that community hospitals with networks are more efficient than non-network hospitals. From a management and policy perspective, this study suggests that public policies should induce hospitals to downsize or upsize into optional size, and private hospitals and nonprofit hospitals should change their organizational objectives from profit-driven to quality-driven.