EFFICIENCY OF PUBLIC HEALTHCARE: A CASE OF ODESSA HOSPITALS

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1 EFFICIENCY OF PUBLIC HEALTHCARE: A CASE OF ODESSA HOSPITALS Ibrahim A. M. Alsharf, PhD Student Department of Business Administration and Corporate Security International Humanitarian University, Ukraine Introduction In today's socially-oriented economy the healthcare occupies an exceptional place, since it produces socially consumed and necessary goods - medical services. Recently, health becomes increasingly involved in the economic turnover of society, which is facilitated by active operation of medical institutions on a market basis. Moreover, there is an increasing dependence of public health services on the overall economic growth within a country: the solvency of the population affects the volume of paid services in the sector, and stabilization in the public sector makes it possible to count on the development of targeted programs financed by the state. The problems of ensuring high economic efficiency that is inherent to private medical companies, whose activities are focused primarily on profit making, may not coincide with the problems of the public healthcare sector, which in Ukraine is traditionally more prevalent and popular among the population. This sector, due to constitutional provisions, is very limited in the legal receipt of income from the implementation of core activities. The absence of compulsory health insurance and health care reform that allow commercialization of this sector makes us to look for a different kind of economic criteria for assessing the efficiency of public (state and municipal) medical institutions. In our opinion, it is necessary to conduct an assessment of efficiency of the activities of such institutions, starting from the quantitative and qualitative indicators of the results of their work, in comparison with the amount of budget financing spent on them. Such efficiency will be a mix of medical, social, economic and financial efficiencies. In this paper we analyzed such mixed efficiency for public hospitals in Odessa that is a big Ukrainian port city situated on the Black Sea coast. 77 Methodology The methodology of this paper is based on non-parametric frontier analysis of efficiency viz. the Data envelopment analysis that is appropriate to study an efficiency of public sector (Vegesna and Dash, 2014). The basic and special models of the Data envelopment analysis are used in this study to analyze an efficiency of state-owned hospitals. To achieve the objectives of the study, we applied the following sequence of procedures (methodology): 1) an evaluation of super-efficiency (see in Ramzi and Ayadi, 2016) of the sample of hospitals with the identification of leaders and outsiders using the appropriate DEA model; 2) an assessment of the returns to scale (RTS) and scale efficiency for a sample of hospitals using two basic DEA models (see in Goncharuk, 2013); 3) an identification of reserves to reduce the inputs of hospitals and the potential for efficiency growth using the DEA slack-based model (see in Goncharuk, 2009).

2 78 The Data Here the following indicators were considered as inputs: (1) number of employees, including senior and middle medical personnel; (2) the number of actual beds; (3) the amount of budget financing of hospital as an indicator of the total costs of activities. The following indicators were considered as output parameters of activity: (1) the number of treated patients; (2) average usage of a bed-place. For the analysis, we used data on 14 Odessa hospitals. Descriptive statistics for the sample of hospitals under consideration for 2015 are shown in Table 1. Table 1. Descriptive Statistics for the Sample of Hospitals Variables Mean Median Stand. dev. Inputs Number of Employees Number of Actual Beds Amount of Budget Financing, 000 UAH Outputs Number of Treated Patients Average Usage of a Bed-Place, days The Results of Alalysis Stage 1 At the first stage of analysis the rating of state-owned hospitals in Odessa was compiled that based on the obtained super-efficiency scores (Table 2). Table 2. Super-efficiency Scores and Rating for State Hospitals of Odessa for 2015 Hospital Name No. in Rating Super-efficiency Score, % SMI No SMI No SMI No SMI No SMI No SMI No SMI No SMI No SMI No SMI No SMI No SMI No SMI No SMI No Average by sample As it can be seen, in 2015, 8 of 14 state hospitals of Odessa were located on the efficiency frontier. A large number of relatively efficient hospitals indicates small

3 deviations in the sample from the average level of efficiency. This is confirmed by the absence of extremely inefficient hospitals, the worst of which has a super-efficiency score equals Hence this shows a relative stability of state hospitals in Odessa. Nevertheless, it is possible to single out a group of obvious leaders who noticeably break away in terms of super-efficiency level even from other efficient hospitals. That group includes: SMI No. 4, SMI No. 8, SMI No. 9 and SMI No.12. In the group of outsiders it is possible to include institutions whose efficiency level is below the average for the sample: SMI No. 6, SMI No. 3, SMI No. 13, SMI No. 5, and SMI No Stage 2 At the second stage of analysis we assessed an impact of the scale factor on efficiency of state hospitals in Odessa. The results of calculations of the returns to scale (RTS) and scale efficiency are shown in Table 3. Table 3. Scale efficiency and RTS for State Hospitals of Odessa for 2015 Hospital Name No. in Rating Scale Efficiency Returns to Scale (RTS) SMI No SMI No SMI No SMI No SMI No SMI No SMI No SMI No SMI No SMI No SMI No SMI No SMI No SMI No Average by sample A distinctive feature of the budgets of state hospitals in Odessa is that none of them has an increasing RTS. This means that in order to ensure the growth of efficiency of the public healthcare sector in Odessa, it is necessary to reduce its scale. Moreover, this factor is determining in the vast majority of inefficient hospitals of the sample. Stage 3 At the third stage of analysis we used a slack-based DEA model and the DEAFrontier computer program to reveal the reserves of possible reduction in inputs and the potential for increasing the efficiency of the public healthcare sector in Odessa. The results of the estimates are shown in Table 4.

4 Table 4. Potential for Efficiency Growth and Reserves for Inputs Reduction Reserves for Inputs Reduction Potential of Number of Amount of Budget Number of Actual Beds Efficiency Employees Financing Growth, % people % units % 000 UAH % As it can be seen, in terms of the number of actual beds, the reduction reserve is almost zero, which indicates a rather high workload for almost all state hospitals in Odessa, except for the SMI No. 2. The reserve of personnel reduction was also low, mainly for the hospitals that are the largest outsiders: SMI No. 5 and SMI No. 7. It means that getting the efficiency frontier requires from these hospitals a reduction of number of employees, respectively, for 80 and 71 people. The largest reserve was identified by the amount of budget financing, which in the sample as a whole was overestimated by more than 2 times in comparison with the efficient level. And such a significant reserve (35.8 million UAH.) exists due to an inefficient use of budget funds by four hospitals of sample: SMI No. 3 - by 19.3 million UAH; SMI No. 5 - by 12.1 million UAH; SMI No. 7 - by 3.2 million UAH; SMI No for 1.2 million UAH. Thus, for each of the inefficient state hospitals in Odessa the factors and reserves for reducing inputs are identified: SMI No. 2 - reduction of beds-places for 5 units helps to reach the efficiency frontier; SMI No. 6 - to achieve the efficiency frontier it is enough to eliminate the scale inefficiency by reducing the total volume of services by 15.9%; SMI No. 3 - in order to reach the efficiency frontier it needs to reduce inefficient use of budgetary funds by 19.3 million UAH together with eliminating the scale inefficiency by 16.2%; SMI No. 13 in order to reach the efficiency frontier it needs to reduce inefficient use of budgetary funds by 1.2 million UAH together with eliminating the scale inefficiency by 21.6%; SMI No. 5 - staff reduction for 80 people together with a reduction in the expenditures of budgetary funds by UAH 12.1 million can help reach the efficiency frontier; SMI No. 7 - staff reduction for 71 people together with a reduction in the expenditure of budgetary funds by 3.2 million UAH will significantly improve its efficiency. In general, the use of all identified reserves will raise the level of efficiency of the public healthcare sector in Odessa by 7.9%. The relatively low level of the potential for efficiency growth in the sample indicates a small difference in the level of efficiency of state hospitals in Odessa, which adhere to uniform standards and state standards in their work. Therefore, the internal growth potential of this sector is not so great. To increase it significantly, the reform of the healthcare system, the commercialization of Ukrainian medicine and the introduction of a medical insurance system are required.

5 Conclusions Therefore, based on the results of analysis of the efficiency of state healthcare sector in Odessa that was conducted according to the methodology proposed by the author, the following conclusions can be drawn. (1) It is established that the most of state hospitals are on the efficiency frontier, and their efficiency scores weakly deviate from the average level, which indicates the relative stability of this sector; (2) The distinguishing feature of the state-owned hospitals is that none of them has an increasing RTS. This means that in order to ensure the growth of the efficiency of the state healthcare sector in Odessa, it is necessary to reduce its scale. Moreover, this factor is determining in the vast majority of inefficient hospitals of the sample. (3) The high reserves of reduction in budget financing (by 51.9%) due to its inefficient use by 4 hospitals of the sample, as well as small reserves for the reduction in the number of employees and beds, were identified. The full use of the identified reserves will increase the efficiency of the public healthcare sector in Odessa by 7.9%; Despite the fact that the internal growth potential of this sector is not so high, it can be improved by reforming the healthcare system, its commercialization and introducing the system of medical insurance. 81 References Goncharuk, A. G. (2009), Improving of the efficiency through benchmarking: a case of Ukrainian breweries, Benchmarking: An International Journal, Vol. 16 No.1, pp Goncharuk, A. G. (2013), About the Influence of High Gas Price on an Efficiency, Journal of Applied Management and Investments, Vol. 2 No. 1, pp Ramzi, S. and Ayadi, M. (2016), Assessment of Universities Efficiency Using Data Envelopment Analysis: Weights Restrictions and Super-Efficiency Measure, Journal of Applied Management and Investments, Vol. 5 No. 1, pp Vegesna, S. and Dash, M. (2014), Efficiency of Public and Private Sector Banks in India, Journal of Applied Management and Investments, Vol. 3 No. 3, pp EFFICIENCY OF PUBLIC HEALTHCARE: A CASE OF ODESSA HOSPITALS Ibrahim A. M. Alsharf International Humanitarian University, Ukraine Abstract The paper contains the results of analysis of a mixed efficiency for public hospitals in Odessa city. Using several models of the Data envelopment analysis, the author found a relative stability of public healthcare sector, but it needs to reduce its scale for efficiency improvement. The high reserves of reduction in budget financing due to its inefficient use were also idenified. The author asserted that an efficiency of public healthcare sector can be improved via reforming the healthcare system, its commercialization and introduction of the system of medical insurance. Keywords: efficiency, public healthcare, hospitals, data envelopment analysis, budget financing, Odessa

International Journal of Management (IJM), ISSN (Print), ISSN (Online), Volume 4, Issue 1, January- February (2013)

INTERNATIONAL JOURNAL OF MANAGEMENT (IJM) ISSN 0976-6502 (Print) ISSN 0976-6510 (Online) Volume 4, Issue 1, January- February (2013), pp. 175-182 IAEME: www.iaeme.com/ijm.asp Journal Impact Factor (2012):