Measuring Performance of U.S. Nonprofit Hospitals: Do Size and Location Matter?

This study measures the technical efficiency, pure technical efficiency, and scale efficiency of nonprofit hospitals, the most common hospital ownership type in the United States, using a sample of 118 nonprofit hospitals between 1999 and 2003. The study conducts input-oriented and output-oriented data envelopment analyses (DEAs) using multiple input and output variables. DEA results suggest that urban nonprofit hospitals are relatively more efficient than their rural counterparts. The results also show that smaller nonprofit hospitals are relatively more efficient than larger and medium hospitals. Interestingly, results show that small urban nonprofit hospitals are relatively more efficient than any other nonprofit hospitals. From a management and policy perspective, this study indicates that rural nonprofit hospitals and larger hospitals need to benchmark urban or smaller nonprofit hospitals to improve efficiency, possibly by downsizing the scale of the hospitals, adopting new marketing strategies, and changing the cost structure of facility operation.