The role of demand and weight restrictions in DEA measurement of hospital efficiency with an application to the hospitals of Veneto Region - Italy

This paper analyses the role of weight restrictions and of demand variables in DEA measurement of hospitals’ technical efficiency. Firstly, we briefly examine the hospital as a decision-making unit and illustrates the DEA approach. Then, we discuss the main assumptions of the DEA and argue that this method requires precise value judgements, particularly with respect to production technology and managers’ or policy-makers’ preferences for output mix. This implies the adoption of particular constraints on input and/or on output weights. We also consider whether the inefficiency scores of hospitals operating within a NHS can be attributed to the use of non-optimal production techniques (internal inefficiency attributable to hospital management), to scale inefficiencies, or to excess production capacity with respect to demand (external inefficiency attributable to policy-makers). Finally, the DEA method is applied to measure the efficiency of 85 acute hospitals in Veneto, a Northern region of Italy. The empirical analysis allows us to verify the precise role of weight restrictions and of demand in the measurement of hospitals’ efficiency scores.