DSpace at VNU: Efficiency and productivity of hospitals in Vietnam

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Journal of Health Organization and Management

Efficiency and productivity of hospitals in Vietnam

Thuy Linh Pham

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Thuy Linh Pham, (2011),"Efficiency and productivity of hospitals in Vietnam", Journal of Health Organization and Management, Vol 25 Iss 2 pp 195 - 213

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Efficiency and productivity of

hospitals in Vietnam

Thuy Linh Pham

University of Economics and Business, Vietnam National University,

Hanoi, Vietnam

Abstract

Purpose – The purpose of this paper is to examine the relative efficiency and productivity of

hospitals during the health reform process.

Design/methodology/approach – Data envelopment analyses method (DEA) with the input-oriented

variable-returns-to-scale model was used to calculate efficiency scores Malmquist total factor

productivity index approach was then employed to calculate productivity of hospitals Data of 101

hospitals was extracted from databases of the Ministry of Health, Vietnam from the years 1998 to 2006.

Findings – There was evidence of improvement in overall technical efficiency from 65 per cent in

1998 to 76 per cent in 2006 Hospitals’ productivity progressed around 1.4 per cent per year, which was

mainly due to the technical efficiency improvement Furthermore, provincial hospitals were more

technically efficient than their central counterparts and hospitals located in different regions

performed differently.

Originality/value – The paper provides an insight in the performance of Vietnamese public

hospitals that has been rarely examined before and contributes to the existing literature of hospital

performance in developing countries

Keywords Process efficiency, Productivity rate, Hospitals, Data analysis, Indexing, Vietnam

Paper type Case study

1 Introduction

Efficiency improvement in the provision of health care has been a major issue facing the

health system in Vietnam The demand for health care is large and increasing over time

due to a growing and an ageing population However, resources for health care provision

are limited and the government has inadequate resources to finance the rising demand

for increased and better quality services The constrained ability to adequately meet

health care needs was exacerbated as the economy was transformed from a centrally

planned one to a market-based one in the end of 1980s This has led to deficiencies and

inefficiencies in the health system, especially within hospitals Therefore, since the 1990s

a series of structural and institutional reforms has been being introduced, whose main

objectives were to meet the increasing demand of health services and boost the efficiency

and productivity of the health system in general, and hospitals in particular

Despite the extensive body of literature dealing with the efficiency and productivity

of service provision in health care, few empirical analysis in developing countries

during the reform process exist A number of recent surveys of Hollingsworth et al

(1999), Hollingsworth (2003), and Worthington (2004) have provided an overview of

efficiency literature in hospitals Most of the studies identified in these review papers

are on the efficiency and productivity of developed countries, for example, out of 188

studies reviewed in Hollingsworth (2003), only one study of Zere et al (2001)

investigated the efficiency and productivity of hospitals in a developing country, South

www.emeraldinsight.com/1477-7266.htm

Efficiency of hospitals in Vietnam 195

Received 6 May 2009 Revised 13 November 2009 Accepted 24 February 2010

Journal of Health Organization and

Management Vol 25 No 2, 2011

pp 195-213

q Emerald Group Publishing Limited

1477-7266

Africa However, recently, there are also some more studies on hospital efficiency and productivity of developing countries such as Osei et al (2005) on Ghana’s hospitals, and Pilyavsky and Staat (2008) on Ukraine’s hospitals

Inspired from an empirical literature, which has investigated the efficiency and productivity of hospitals under the structural change circumstances, it is important to analyse whether the Vietnamese hospital sector is able to keep up its productivity by adapting to these changes The study, therefore, aims to measure the relative efficiency and changes in productivity of hospitals during the health reform process from 1998 to

2006, and then highlight possible policy implications of the results for policy makers This paper is organised as follows Section 2 gives a brief overview of the healthcare system in Vietnam Section 3 reviews the existing literature on hospital efficiency and productivity Section 4 presents the selection of the estimation techniques used and the data set Section 5 details the analysis and the efficiency and productivity results, which are then summarised in the conclusions in section 6

2 The system of healthcare in Vietnam Before the reform initiatives in the 1990s, the Vietnamese health system could be considered a universal health system, where the government was responsible for the provision of health services to all of the population and entirely financed health care programmes and the operations of health facilities (Bloom, 1997) All health facilities, especially hospitals, were state-owned, entirely funded by the government, and provided free medical services to the entire population These public hospitals also had

to follow state-led targets, which focused on the volume of health services delivered Meanwhile, private health care facilities did not officially exist Accordingly, the health system was characterised by the shortage of health service provision, under-funding and inefficiency (Chen and Hiebert, 1994; Hoi et al., 2000) Since the 1990s, therefore, a series of structural and institutional reforms has been introduced across different sections of the healthcare system in order to meet the increasing demand for health services and to boost its efficiency and productivity

Following these structural change programmes, the health system has basically changed from a state-led system providing free-of-charge health care into a mixed, fee-for-service based care system The health reform programmes have called for, for example, liberalisation of the pharmaceutical industry, legalisation of the private provision of health services, and the deregulation of the retail trade in drugs and medicines The most important change of the health care reform programmes has been the restructuring of the public hospital sector In particular, the restructuring programme in the hospital sector has emphasised financial and managerial regulatory changes via the introduction of user fees, the implementation of health insurance schemes, and the granting of autonomy for public hospitals (Sepehri et al., 2005; World Bank, 2005; Sepehri et al., 2003; Ladinsky et al., 2000)

Health care services are now carried out by both private and public health providers

in the Vietnamese healthcare system The public health providers include health care centres and public hospitals The private health providers consist of private clinics and private hospitals Among these public and private health care providers, hospitals play important roles in the health system, especially in the improvement of the overall health of the public There are 1,053 hospitals with 143,999 beds activate in the healthcare system, including 1,002 public hospitals and 51 private hospitals The

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public hospitals are vertically divided into first three tiers of national administrative

structure: central, provincial, district These hospitals are closely related to each other,

with the central and provincial hospitals assisting the district ones in terms of

providing professional medical operations and techniques The private hospitals

mainly provide health services on demand of middle- and high-income people

Vietnam has been spending a significant proportion of its wealth on health,

approximately 5.1 per cent of gross domestic product (GDP) per year Currently, the

health care finance comes from two sources, public and private ones The former

source consists of revenue from direct and indirect taxes and the latter source consists

of direct payments from patients and health insurance schemes Of these two sources,

health care expenditure has been increasingly financed by the private sources During

the period 1990-2005, the total private spending on health has increased 2.7 times in

nominal terms, from US$ 0.76 billion to 2.06 billion This means that the private

percentage of health expenditure has risen from 67.3 per cent of total health

expenditure in 1998 to 77.4 per cent in 2005 Meanwhile, the role of the government in

financing the health sector has gradually decreased, from 32.7 per cent of total health

expenditure to 22.6 per cent, respectively

Most of the public funds and a large part of the private funds are spent on public

health facilities, in which public hospitals consume approximately 40 per cent of the

total health expenditure The structure of financial sources for public hospitals, as

presented in Figure 1, therefore, can partly illustrate both the public and private

expenditure on health It can be observed in the figure that public hospitals have four

financial sources: the state budget, reimbursement from health insurance; direct

patient payments (user fees), and domestic or foreign aid The figure also shows that

the government budget is still an important financial source for public hospitals during

1994-2006 However, the proportion provided by the government budget in terms of the

total financial sources of public hospitals has considerably declined from 68.4 per cent

in 1994 to 32 per cent in 2006 The most important financial source – although only by

a small margin – is now direct patient payments The percentage of user fees in

financing hospitals has increased over time, from 23.2 per cent of total revenues of

public hospitals in 1994 to 33 per cent in 2006 The percentage of revenue coming from

health insurance reimbursement has also gradually increased from 7.2 per cent to 28

per cent, respectively

Among the health service providers in the Vietnamese health system, public

hospitals play the most crucial role, and their performance has a significant effect on

the well-being of the Vietnamese people Therefore, there is a need for empirical

analysis measuring hospital efficiency and productivity under the ongoing structural

change circumstance This is the focus of this paper

3 Hospital efficiency: literature review

There has been an extensive body of literature examining the performance of the

health care sector Studies, which focus on efficiency and productivity using frontier

techniques, have been undertaken in all areas of the health sector: from primary care to

secondary care, tertiary care to nursing home care, as well as from the overall health

system to health care providers, administration bodies, and subgroups in health care

providers such as departments and professionals Of the empirical studies on efficiency

in the health care sector, many have investigated the efficiency and productivity of

Efficiency of hospitals in Vietnam 197

Figure 1 Financial sources in hospitals 1994-2006

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hospitals under the health reform process These empirical studies focused on the

efficiency and productivity of hospitals in Turkey, South Africa, Kenya, Ghana,

Namibia, and Ukraine among others

In Turkey, two studies were conducted to examine the technical efficiencies of

hospitals: one analysed the acute general hospitals (Ersoy et al., 1997) and the other

considered the Ministry of Health public hospitals (Sahin and Ozcan, 2000) Ersoy et al

(1997) used the DEA method to examine technical efficiency and found that over 90

percent of Turkish acute general hospitals were inefficient They indicated that the

inefficient hospitals used far more inputs and produced fewer outputs than their

efficient counterparts To be specific, the inefficient hospitals, on average, utilised 32

per cent more specialists, 47 per cent more primary care physicians, and had 119 per

cent more staffed bed capacity, whilst producing 13 per cent less outpatient visits, 16

per cent less inpatient hospitalisation, and 57 per cent less surgical operations than the

efficient ones The findings of Sahin and Ozcan (2000) were found to be in agreement

with the results obtained in Ersoy et al (1997) According to Sahin and Ozcan (2000),

more than half of public hospitals (55 per cent) were inefficient The inefficient

hospitals could save over 600 million dollars over five years if they reduced the number

of unused beds, the excessive number of specialist and other health labour, and the

overspent revolving funds

In South Africa, Zere et al (2001) measured the technical efficiency and productivity

of 86 hospitals using the DEA model, and subsequently examined the impact of some

hospital characteristics on hospital efficiency and productivity using the Tobit and

OLS regression models The authors found that a large number of hospitals (87 per

cent) were inefficient, in which the level of pure technical efficiency was the same

whilst the degree of scale efficiency was different across size-groups of hospitals The

decline of hospital productivity over the period studied was explained by technical

regression Furthermore, it was shown that occupancy levels and the number of

outpatient visits as a proportion of inpatient days were significantly positively

significantly related to efficiency

In Kenya, Kirigia et al (2002) used two basic DEA models, constant returns to scale

and variable returns to scale, to examine the technical efficiency of 54 public district

hospitals in the financial year 1998/1999 Due to a plenitude of information from the

database of the Ministry of Health, 12 input and eight output measures were employed

The results showed that 74 per cent of the total public hospitals were technically

efficient and 70.5 per cent achieved scale efficiency

The relative technical efficiency and scale efficiency of public hospitals and health

centres in Ghana was evaluated by Osei et al (2005) In the study, the sample of 21

public hospitals and 17 health centres was chosen by the simple random sampling

technique Of the total number of hospitals and health centres investigated, 47 per cent

of hospitals and 70 per cent of health centres were found to be technically inefficient

and the number of scale inefficient hospitals and health centres accounted for 59 per

cent and 47 per cent, respectively The findings indicated that the hospitals could

improve their efficiency by reducing their current number of medical officers/dentists,

technical staff, subordinate staff and beds, or increasing numbers of maternal and child

care visits, deliveries and discharges Health centres could become more efficient by

increasing maternal and child health visits, deliveries, fully-immunised children, and

outpatient curative visits

Efficiency of hospitals in Vietnam 199

In Namibia, Zere et al (2006) investigated the technical efficiency of Namibian hospitals based on a sample of 26 district hospitals during the period 1997-2001 The input-oriented DEA model was employed and the robustness of the DEA technical efficiency scores was tested The authors reported that more than half of the district hospitals were inefficient and the inefficiency was due to both pure technical inefficiency and scale inefficiency It was also indicated that the prevalent inefficiency was due to the increasing returns to scale It would be possible for the hospitals to become efficient by reducing their excess inputs used by 26-37 per cent or by merging some small hospitals after expanding the primary care units

In Ukraine, Pilyavsky and Staat (2008) conducted a study to investigate technical efficiency and efficiency changes of hospitals and polyclinics The DEA and Malmquist productivity index methods were employed upon the data set for the five-year period 1997-2001 It was found that most hospitals analyzed were efficient; however, a large number of polyclinics were inefficient Furthermore, the findings revealed that productivity does not almost change over the period under consideration

As mentioned in the introduction, although there are some studies on efficiency and productivity of hospitals under the reform process, there is no research regarding to productivity of hospital sector in Vietnam This paper, therefore, uses a complete time-series to examine the changes in efficiency and productivity of public hospitals

4 Estimation techniques and data set Estimation techniques

To measure efficiency of healthcare organisations, two different frontier methodologies, stochastic frontier analysis (SFA) and data envelopment analysis (DEA), are widely used These methods were developed based on the concepts of efficiency measurement introduced by Farrell (1957) Farrell (1957) indicated that the key to measuring efficiency is the estimation of the best practice production frontier (isoquant) against which each individual decision-making unit (DMU) is to be compared Accordingly, SFA methodology developed by Aigner et al (1997), and Meeusen and Van den Broeck (1977), and DEA methodology developed by Charnes

et al (1978) use different techniques to envelope data, either statistical or mathematical programming, respectively To that end, they make different accommodations for the structure of production technology, for random noise and for the measurement of efficiency

There is a longstanding debate on how to measure the technical efficiency of health facilities The cornerstone of the discussion is the problem of choosing the appropriate methodology, either DEA or SFA Some comparisons between frontier techniques in measuring hospital efficiency have been made (e.g Chirikos and Sear, 2000; Jacobs, 2001; among others) These studies showed that despite the intense research effort, there is still no consensus to the best method for measuring frontier efficiency in hospitals Therefore, this paper chooses the DEA approach[1] in order to measure the efficiency of the Vietnamese hospitals for the two following reasons First, as indicated

by Osei et al (2005) in their study of efficiency in Ghana hospitals and Valdmanis et al (2004) in their study of efficiency in Thai hospitals, the application of DEA is likely to

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be suitable in low-income countries where there is insufficient health sector

information, and particularly the data on prices of hospital inputs and outputs

Second, the preference for DEA is driven by considering its advantages and

disadvantages as opposed to SFA The important advantage of the DEA method is

that it requires no pre-specification of a functional form and distributional form for the

inefficiency terms It can simultaneously accommodate multiple inputs and outputs,

and enable a decomposition of the efficiency measurement into several components

Furthermore, DEA is less “data-intensive” than econometric methods because it does

not require a relatively large sample size, information on prices of inputs and outputs,

nor transformation of input and output physical units into any other single unit

measure However, it is sensitive to outliers and measurement errors

In this paper, an input-oriented DEA framework is employed Alongside the fact

that an input-based DEA orientation has been widely applied in the literature on

hospital efficiency, the input-based approach is chosen over the alternative

output-based approach for the following reasons First, there is a growing demand

for health services in terms of both quantity and quality; however, demand for health

services is difficult to estimate Second, the input-based orientation seems to be more

consistent with the regulated context of the public hospitals, in which managers have

more control over inputs (resources) than they do over outputs (service production)

Finally, this method also reflects the primary goal offered by policy makers that public

hospitals are obliged to meet all people’s demands of health care services and that

hospitals should reduce costs or limit input use

In general, any analysis using DEA method provides only a “snap-shot” of hospital

performance in a given point of time (i.e static performance) However, an extension to

the standard DEA model such as Malmquist productivity index approach developed

by Fa¨re et al (1994) can take into account the hospital performance in a time-series

setting Therefore, the Malmquist productivity index[2] is also analysed in this paper,

to measure performance over time (i.e productivity change) and decompose any

change into the efficiency and frontier shift effects

Data set

Data for this study were obtained from the database on the hospitals of Vietnamese

Ministry of Health and cover a period of nine years from 1998-2006 The sample

hospitals used in this study, was the 101 general public hospitals over a total of 116

hospitals belonging to the hospitals under consideration Central general hospitals

and provincial general hospitals, operating as either the tertiary or main secondary

centres, were chosen because they consume the largest part of the health resources in

the health care system and their performance will have a significant influence on the

health services provided and the health status of the overall population The general

district hospitals were taken out of the sample because they are of a small size and

less complicated, and provide fewer kinds of health services at a lower quality than

the sampled hospitals The specialty central and provincial hospitals have distinct

missions, unique production processes, and serve distinct patients, which would have

resulted in a heterogeneous sample In addition, due to the elimination of some

inaccurate and missing values, 15 provincial hospitals were excluded As a result, the

sample had 101 hospitals, including nine central hospitals and 98 provincial

hospitals

Efficiency of hospitals in Vietnam 201

The selected model for the empirical analysis of this paper is presented in Table I and the descriptive statistics of input and output variables are displayed in Appendices 2 and 3

Regarding the output variables, following the hospital efficiency studies by Hu and Huang (2004), Chang et al (2004); hospital outputs in this study are proxied by outpatient visits (Y1), inpatient days (Y2) and surgical operations (Y3) performed First, outpatient visits (Y1) are chosen as an output, which include both the scheduled visits to physicians and the unscheduled visits to the emergency room of hospitals Second, health services for inpatients have different features and consume more resources than outpatient services, therefore, inpatient health services is another output of hospitals This study follows the argument of Granneman et al (1986) that the inpatient day factor is more medically homogeneous unit than the inpatient factor; therefore the use of inpatient days (Y2) can provide a more favourable hospital output Finally, the surgical operation output (Y3) is used because it requires different combinations of inputs than medical care, such as specialised equipment and personnel All of these output measures are aggregate, and measuring hospital outputs

by such aggregate variables does not capture case-mix variation and quality of services provided Even though the use of case-mix index such as diagnosis-related-groups (DRGs) applied in many health systems may handle the problem, the absence of data makes its use limited in Vietnam as well as in most developing countries (Zere et al., 2006; Pilyavsky et al., 2006; Pilyavsky and Staat, 2008)

Regarding the input variables, inputs used in assessment of hospital efficiency often fall into two categories: recurrent resources and capital resources The numbers of personnel and hospital beds are considered as proxies for recurrent and capital resources used in hospitals, respectively; and therefore they are widely used in the studies of hospital efficiency (e.g Ferrari, 2006; Chen, 2006) Accordingly, the number

of actual hospital beds used to provide health services and surgical operations are employed as an overall indicator of the capital input (X1) However, due to unavailability of disaggregate data on personnel, only the total number of hospital’s personnel (X2), including physicians and non-physicians working in the hospitals, is used as a proxy of recurrent capital The use of these inputs can be explained by the fact that the hospital production process, as mentioned above, is largely administrative, delivers the health care services, and extensively uses the qualified labour and beds to produce health outputs

Inputs

employed by the hospital in a year Outputs

Outpatient visits (Y1) Total number of outpatient visits to the hospitals within a year Inpatient days (Y2) Total number of days that inpatients stayed in hospital beds and

received inpatient services within a year Surgical operations (Y3) Total inpatient and ambulatory surgical operations within a year

Table I.

Selected variables for

DEA and Malmquist TFP

models

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5 Results

Efficiency results

The resulting efficiency scores of 101 general hospitals in Vietnam are presented in

Table II It is worth noting that the efficiencies reported are only relative, i.e

efficiencies relative to the best performing hospitals The results reveal that the

average overall technical efficiency increased from 65.2 per cent in 1998 to 76.7 per cent

in 2006, and the pure technical efficiency increased from 71 per cent to 80.1 per cent,

respectively It can be seen that both overall and pure technical efficiency had a slight

decrease initially (1998-1999) and rose sharply for the last two years Overall,

Vietnamese hospitals have experienced an upward trend in technical efficiency during

the sample period 1998-2006 This implies that the levels of hospital efficiency scores

are getting better over time An explanation for this could lie in the fact that structural

changes in public hospitals in terms of financing mechanism and management were

undertaken during the period of study

The scale efficiency of the hospitals is quite high and, in general, increased over the

period studied It has increased from 91.9 per cent in 1998 to 96 per cent in 2006,

resulting in average scale efficiency for the entire sample period of 92.4 per cent It can

be observed that the average scale efficiency was more than 93 per cent in the last three

years of the sample period This suggests that the sample hospitals move closer to the

most productive scale and that there is a little room for the inefficient hospitals to

improve their performance by operating at the optimal scale

Furthermore, technical efficiency is investigated in terms of hospital types and

location The results are presented in Table III and Table IV, respectively Table III

shows that the central hospitals have experienced an increase in overall and pure

technical efficiency from 2002, after a slight reduction in 1999 The average overall

technical efficiency of central hospitals increased from 58 per cent in 1998 to 79 per

cent in 2006 and average pure technical efficiency increased from 66.1 per cent to

81.8 per cent, respectively Meanwhile, the efficiency of provincial hospitals

increased by 10.7 per cent for overall technical efficiency and 8.4 per cent for pure

technical efficiency increased over the sample period This suggests that central

hospitals’ performance may differ from that of provincial hospitals Non-parametric

Mann-Whitney test is used to compare the distribution of the efficiency measures of

provincial and central hospitals The result of the test is at the 95 per cent level of

Table II Annual average efficiency scores

Efficiency of hospitals in Vietnam 203