The Efficiency Frontier of For-Profit Hospitals

This study evaluates the efficiency of small and large for-profit hospitals using Data Envelopment Analysis (DEA). For this study, small for-profit hospitals are 35 beds or less which is consistent with the Federal designation of critical access hospitals (CAH). Large for-profit hospitals are 36 beds and greater. Results indicate overall efficiency in small for-profit hospitals was 60% in 2013. In contrast, the overall efficiency in large forprofit hospitals was 71% in 2013. The number of small for-profit hospitals operating on the efficiency frontier was 18 which represent 12%. Similarly, the number of large forprofit hospitals operating on the efficiency frontier was 49 which represent 8%. This clearly documents for-profit hospitals’ overall efficiency increases with greater size. Hospital executives, healthcare policymakers, taxpayers and other stakeholders benefit from studies that improve hospital efficiency. From a policy perspective, this study demonstrates a positive association between increased hospital size and increased efficiency within the for-profit hospital industry.