Cost efficiency analysis of network DEA models: the case of Mashhad hospitals

Abstract

<strong>Background and objectives: </strong>This paper presents cost efficiency analysis of network models with parallel structure. Through measuring cost efficiency of this type of systems, conventional cost efficiency model considers the system as a whole and neglects the operations of the internal processes. <strong>Methods: </strong>As a theoretical contribution, the parallel cost efficiency model was proposed to utilize the operation of internal processes for measuring cost efficiency of the system. This study proposed a cost efficiency decomposition of parallel systems, where each process utilized external inputs to produce external outputs. In addition to the theoretical aspect, as an empirical contribution, we implemented the proposed model for cost efficiency analysis of hospitals in Mashhad for two levels, i.e. hospital level and ward level. <strong>Result: </strong>Ignoring organizational structure of hospitals and considering them as black boxes, the average technical efficiency of hospitals was found to be 0.6 for. Then considering the internal structure of hospitals, the technical efficiency values of hospitals changed into 0.1. Taking cost efficiency measures into account, it was found that the average cost efficiency of hospital was low, namely, about 0.32 that is attributed to hospital's system; however, the average cost efficiency of wards was much higher, i.e. about 0.38, though it was still low. Among different wards, ICU ward ranked the first level in terms of cost efficiency, followed by emergency ward and operation ward ranked the second and third, respectively. <strong>Conclusion: </strong>Internal structure of hospitals, as a complex organization, should be taken into account in efficiency analysis to have a better insight regarding performance. It is worth mentioning that in hospitals in Mashhad more attention must be paid to cost minimization and cost management, specifically in emergency wards and operation wards.