Gerdtham U, Löthgren M,Tambour M & Rehnberg C, (1999)

‘Internal markets and efficiency in health care:
a multiple output stochastic frontier analysis’

Health Economics, 8: 151-164.

  • Tests for the existence and magnitude of an effect of new reimbursement schemes on technical efficiency in Swedish health care.
  • A stochastic frontier model is proposed and then empirically estimated.
  • The Swedish healthcare system is financed and delivered by 26 County Councils which are politically, economically and administratively ‘independent’.
  • Between 1991 and 1995, five of these Councils implemented a system of internal markets characterised by a purchaser/provider split and output-related (‘DRG’-type) reimbursement of providers.
  • The authors test whether implementing output-based reimbursement affects technical efficiency.

Key results:

  • Introducing output-based reimbursement was found to improve technical efficiency by 9.7% on average.
  • The hypothesis of constant returns to scale in the health care production function could not be rejected.
  • This implies a potential average cost saving of 9.7% as a result of a switch from budget-based to output-based reimbursement.



Back to:

Top of Page

Page updated 13/02/2008 by Alison Taylor