Resource allocation in public hospitals: Is it effective?

Abstract The allocative inefficiency is a fundamental flaw in the public hospitals of the developing countries. The inefficiencies drain the limited public resources allotted for healthcare. Sri Lanka's public health system faces worsening budget constraints. The resource allocation practices of the Ministry of Health focus on increasing the cadre of hospital staff, consequently crowding out the investments on facility development. The purpose of the study is to assess the impact of resource allocation in the tertiary-care public hospitals that are under the central Ministry of Health. The model is based on the assumption that the hospital managers and other agents of a public hospital pursue the objective of quality maximization (in the absence of a profit motive). The inpatient mortality rate is selected as the indicator of quality. With the use of panel data fixed-effects, and first-differencing estimation methods, we study the impact of the resource allocation on the hospital mortality rates. The selected models are statistically significant at 0.1% level. The elasticity effect of the capital is considerably larger than the effects of the human resources, in servicing the patients. The results suggest that the human resource utilization is suboptimal, due to the inadequacy of the capital (i.e. medical equipment, etc.). The reorientation of the resource allocation towards the capital investments may save more lives.