The effectiveness–efficiency trade-off in health care: The case of hospitals in Lombardy, Italy

a r t i c l e i n f o Available online xxxx JEL classification: I12 I18 R12 C51 Keywords: Health outcomes Hospital efficiency Trade-off effectiveness/efficiency We study the presence and the magnitudes of trade-offs between health outcomes and hospitals' efficiency using a data set from Lombardy, Italy, for the period 2008–2011. Our goal is to analyze whether the pressures for cost containment may affect hospital performance in terms of population health status. Unlike previous work in this area, we analyze hospitals at the ward level so comparisons can be made across more homogeneous treatments. We focus on two different health outcomes: mortality and readmission rates. We find that there is a trade-off between mortality rates and efficiency, as more efficient hospitals have higher mortality rates. We also find, however, that more efficient hospitals have lower readmission rates. Moreover, we show that focusing the analysis at the ward level is essential, since there is evidence of higher mortality rates in general medicine and surgery, while in oncology mortality is lower in more efficient hospitals. Furthermore, we find that consideration of spatial processes is important since mortality rates are higher for hospitals subject to high degree of horizontal competition, but lower for those hospitals having strong competition but high efficiency. This implies that the interplay of efficient resource allocation and hospital competition is important for the sustainability and effectiveness of regional health care systems. The recent worldwide growth of health care expenditures has raised strong concerns about cost containment. In the secondary care sector, the main attempts to achieve this goal have focused on health policies to increase the efficiency of hospitals' management and at eliminating possible waste of resources. One central feature of many such policies is the adoption of a prospective payment system (PPS), regulating hos-pitals' reimbursements for the treatments they provide. Under PPS, these reimbursements are classified according to DRG codes and have introduced strong incentives to reduce patients' Length of Stay (LOS). As a response to these incentives, hospitals' managers have adopted procedures and guidelines to increase labor and capital productivity, mainly through the increase of total discharges per bed and per unit of labor. These trends have raised concerns regarding the quality of care. 1 From this perspective, it becomes important to investigate whether there is in the hospital sector a trade-off between hospital efficiency and effectiveness in achieving health outcomes. The goal of this …