Productivity growth, case mix and optimal size of hospitals. A 16-year study of the Norwegian hospital sector

- Norwegian hospital productivity increased by 24.6% points from 1999 to 2014.
- Most of the productivity growth was related to hospital reform of 2002.
- Estimated optimal hospital size was smaller than actual size of most hospitals.

Background and objectivesThis paper analyses productivity growth in the Norwegian hospital sector over a period of 16 years, 1999-2014. This period was characterized by a large ownership reform with subsequent hospital reorganizations and mergers. We describe how technological change, technical productivity, scale efficiency and the estimated optimal size of hospitals have evolved during this period.Material and methodsHospital admissions were grouped into diagnosis-related groups using a fixed-grouper logic. Four composite outputs were defined and inputs were measured as operating costs. Productivity and efficiency were estimated with bootstrapped data envelopment analyses.ResultsMean productivity increased by 24.6% points from 1999 to 2014, an average annual change of 1.5%. There was a substantial growth in productivity and hospital size following the ownership reform. After the reform (2003-2014), average annual growth was <0.5%. There was no evidence of technical change. Estimated optimal size was smaller than the actual size of most hospitals, yet scale efficiency was high even after hospital mergers. However, the later hospital mergers have not been followed by similar productivity growth as around time of the reform.ConclusionsThis study addresses the issues of both cross-sectional and longitudinal comparability of case mix between hospitals, and thus provides a framework for future studies. The study adds to the discussion on optimal hospital size.