Small Hospital Study

Contact: Brad Lifford
January 13, 2011

JOHNSON CITY – A researcher at East Tennessee State University’s College of Public Health measuring the technical efficiency, or operating efficiency, of nonprofit hospitals has found that smaller hospitals in rural settings have an edge over larger ones.

Dr. Chul-Young Roh, an associate professor in the ETSU Department of Health Services Administration, concluded that not only size but also location are significant variables in determining whether nonprofit hospitals are likely to operate efficiently. Roh’s research paper was published in a recent issue of the journal Public Performance & Management Review. His co-authors are Drs. M. Jae Moon of Yonsei University and Changhoon Jung of Inha University, both in South Korea.

The researchers determined that large, nonprofit hospitals generally operate more efficiently when located in urban areas. Even though hospitals with larger numbers of beds should realize economy of scale, the reverse actually proved true in rural settings: As bed counts go up, efficiency typically goes down. Roh said that small, community hospitals generally are more efficient than their counterparts of medium and especially large size. A hospital’s number of acute care beds were used to categorize its size.

“It might be valuable for the leadership of larger nonprofits to look at the management style and efficiency of smaller hospitals and use that for their benchmarking,” Roh said. “All around the country it’s a challenging time for hospitals in general, with rising health care costs, rising competition and a shortage of health care professionals in some areas. Also, developments in technology have made it possible for some complex procedures to take place in an outpatient setting instead of in the hospital.”

Employing a well-regarded research analysis tool called data envelopment analyses, Roh used a wide range of variables to assess technical efficiency. Some of those variables were the number of inpatient days, the number of full-time physicians and other employees, the number of hospital beds, the number of outpatient visits and outpatient surgeries, the amount of charity care provided and a hospital’s current assets – a key diagnostic measure of a hospital’s financial health.

“We found that large, urban hospitals often had an advantage in technical efficiency over rural hospitals because of demographics and competition,” Roh said. “Urban hospitals often have to operate in more competitive markets, and it forces them to be more efficient.”