Skip to main content

Efficiency improvements of public hospitals under a capitation payment scheme

  • Javier García-Lacalle (a1) and Emilio Martín (a1)

In a context of cost containment and demands for better quality in public health care, payment systems are used as an instrument to promote efficiency improvements in service providers. Andalusia has adopted an original type of risk-adjusted capitation payment mechanism to reimburse public hospitals. This paper presents the main characteristics of the reimbursement mechanism of the Andalusian Health Service highlighting some differences with the mechanisms adopted in other parts of Europe. The paper also explores the evolution of the efficiency and quality of the hospitals after its implementation using the Malmquist index. Results indicate that hospitals have slightly improved their efficiency, particularly urban hospitals, and these improvements are not significantly related to a negative evolution of quality. However, it is not possible to assert to what extent, improvements are the consequence of the new payment system. The organisation of the Servicio Andaluz de Salud and the limited competition between hospitals reduce the effectiveness of the reform.

Corresponding author
*Correspondence to: Javier García-Lacalle, Department of Accounting and Finance, Faculty of Economics and Business Administration, University of Zaragoza, Gran Vía 2, 50005 Zaragoza, Spain. E-mail:
Hide All
Aas, I. H. M. (1995), ‘Incentives and financing methods’, Health Policy, 34: 205220.
Allen, P. (2009), ‘Payment by results in the English NHS: the continuing challenges’, Public Money & Management, 29(3): 161166.
Ankjær-Jensen, A., Roslingand, P.Bilde, L. (2006), ‘Variable prospective financing in the Danish hospital sector and the development of a Danish case-mix system’, Health Care Management Science, 9: 259268.
Ashton, C. M., del Junco, D. J.Mansyur, C. (1997), ‘The association between the quality of in-patient care and early readmission: a meta-analysis of the evidence’, Medical Care, 35: 10441059.
Athanassopoulos, A.Gounaris, C. (2001), ‘Assessing the technical and allocative efficiency of hospital operations in Greece and its resource allocation implications’, European Journal of Operational Research, 133: 416431.
Bellanger, M.Mossé, P. (2005), ‘The search for the Holy Grail: combining decentralised planning and contracting mechanisms in the French health care system’, Health Economics, 14: 119132.
Bellanger, M.Tardif, L. (2006), ‘Accounting and reimbursement schemes for inpatient care in France’, Health Care Management Science, 9: 295305.
Botten, G., Grepperud, S.Nerland, S.M. (2004), ‘Trading patients. Lessons from Scandinavia’, Health Policy, 69: 317327.
Boyle, S. (2011), ‘United Kingdom (England): Health System Review’, in A. Maresso and E. Mossialos (eds), Health Systems in Transition, vol. 13, no. 1. Copenhagen: European Observatory on Health Systems and Policies Series, 1486.
Carey, K.Burgess, J. F. (1999), ‘On measuring the hospital cost/quality trade-off’, Health Economics, 8: 509520.
Charnes, A., Cooper, W.Rhodes, E. (1978), ‘Measuring the efficiency of decision making units’, European Journal of Operational Research, 2: 429444.
Cheng, S., Yang, M.Chiang, T. (2003), ‘Patient satisfaction with and recommendation of a hospital: effects of interpersonal and technical aspects of hospital care’, International Journal of Quality in Health Care, 15: 345355.
Chevreul, K., Durand-Zaleski, I., Bahrami, S., Hernández-Quevedo, C.Mladovsky, P. (2010), ‘France: Health System Review’, in C. Hernández-Quevedo and P. Mladovsky (eds), Health Systems in Transition, vol. 12, no. 6. Copenhagen: European Observatory on Health Systems and Policies Series, 1326..
Clarke, A. (2004), ‘Readmission to hospital: a measure of quality or outcome?’, Quality and Safety in Health Care, 13: 1011.
Cooper, W., Seiford, L.Tone, K. (2000), Data Envelopment Analysis: A Comprehensive Text with Models, Applications, References and DEA-Solver Software, London: Kluwer Academic Publishers.
Cylus, J.Irwin, R. (2010), ‘The challenges of hospital payment systems’, The Health Policy Bulletin of the European Observatory on Health Systems and Policies, 12(3): 14.
Department of Health (DoH) (2002), Reforming NHS financial flows: introducing payment by results, London: Department of Health.
Dismuke, C.Sena, L. (2001), ‘Is there a trade-off between quality and productivity? The case of diagnostic technologies in Portugal’, Annals of Operation Research, 107: 101116.
Epstein, D.Mason, A. (2006), ‘Costs and prices for inpatient care in England: mirror twins or distant cousins?’, Health Care Management Science, 9: 233242.
Färe, R., Grosskopf, S., Norris, M.Zhang, Z. (1994), ‘Productivity growth, technical progress and efficiency changes in industrialized countries’, American Economic Review, 84: 6683.
Farrar, S., Yi, D., Sutton, M., Clakley, M., Sussex, J.Scott, A. (2009), ‘Has payment by results affected the way in which English hospitals provide care? Difference-in-differences analysis’, British Medical Journal, 339 :b3047, doi:10.1136/bmj.b3047.
Gaal, P., Stefka, N.Nagy, J. (2006), ‘Cost accounting methodologies in price setting of acute inpatient services in Hungary’, Health Care Management Science, 9: 243250.
García-Lacalle, J.Martin, E. (2010), ‘Rural vs urban hospital performance in a ‘competitive’ public health service’, Social Science & Medicine, 71: 11311140.
García-Lacalle, J., Martin, E. (2011), ‘Financing reforms and hospital performance: effect of changing the reimbursement method on hospital productivity’, 34th European Accounting Association Congress, Rome, April 2011.
Gavira, L.Carmona, G. (2012), Resultados y calidad del sistema sanitario público de Andalucía, Sevilla: Junta de Andalucía, Edición 2012.
Gruca, T. S.Nath, D. (2001), ‘The technical efficiency of hospitals under a single payer system: the case of Ontario community hospitals’, Health Care Management Science, 4: 91101.
Häkkinen, U. (2010), ‘Financing of hospital care in Finland’, The health policy bulletin of the European Observatory on Health Systems and Policies, 12(3): 1013.
Ho, V.Hamilton, B. H. (2000), ‘Hospital mergers and acquisitions: does market consolidation harm patients?’, Journal of Health Economics, 19: 767791.
Hollingsworth, B. (2003), ‘Non-parametric and parametric applications measuring the efficiency in health care’, Health Care Management Science, 6: 203219.
Hollingsworth, B. (2008), ‘The measurement of efficiency and productivity of health care delivery’, Health Economics, 17(10): 11071128.
Hollingsworth, B., Dawson, P. J.Maniadakis, N. (1999), ‘Efficiency measurement of health care: a review of non-parametric methods and applications’, Health Care Management Science, 2: 161172.
Jegers, M., Kesteloot, K., De Graeve, D.Gilles, W. (2002), ‘A typology for provider payment systems in health care’, Health Policy, 60: 255273.
Jha, A. K., Orav, E. J., Li, Z.Epstein, A. M. (2007), ‘Market watch: the inverse relationship between mortality rates and performance in the hospital quality alliance measures’, Health Affairs, 26(4): 11041110.
Johnes, G.Johnes, J. (1993), ‘Measuring the research performance of UK economics departments: an application of data envelopment analysis’, Oxford Economic Papers, 4(2): 332347.
Kaboli, P. J.Barnett, M. J. (2004), ‘Associations with reduced length of stay and costs on an academic hospitalist service’, American Journal of Managed Care, 10: 561568.
Kesteloot, K.Voet, N. (1998), ‘Incentives for cooperation in quality improvement among hospitals – the impact of the reimbursement system’, Journal of health economics, 17: 701728.
Kim, T. H. (2010), ‘Factors associated with financial distress of nonprofit hospitals’, Health Care Management, 29(1): 5262.
Kutzin, J. (2001), ‘A descriptive framework for country-level analysis of health care financing arrangements’, Health Policy, 56(3): 171203.
Langenbrunner, J. C.Wiley, M. M. (2002), ‘Hospital Payment Mechanisms: Theory and Practice in Transition Countries’, in M. McKee and J. Healy (eds), Hospitals in a Changing Europe, England: European Observatory on Health Systems and Policies Series. Open University Press, 150176.
Leonard, K., Rauner, M., Schaffhauser-Linzatti, M. S.Yap, R. (2003), ‘The effect of funding policy on day of week admissions and discharges in hospitals: the cases of Austria and Canada’, Health Policy, 63: 239257.
Linna, M. (2000), ‘Health care financing reform and the productivity change in Finnish hospitals’, Journal of Health Care Finance, 26(3): 83100.
Mckay, N.Deily, M. (2008), ‘Cost inefficiency and hospital health outcomes’, Health Economics, 17: 833848.
Nayar, P.Ozcan, Y. (2008), ‘Data envelopment analysis comparison of hospital efficiency and quality’, Journal of Medical Systems, 32: 193199.
Northcott, D.Llewellyn, S. (2003), ‘The ladder of success in healthcare: the UK national reference costing index’, Management Accounting Research, 14: 5166.
OECD (2008), OECD Health Data, June.
OECD (2010), OECD Health Data 2010, June.
OECD (2011), OECD Health Data, June.
O'Neill, L., Rauner, M., Heidenberger, K.Kraus, M. (2008), ‘A cross-national comparison and taxonomy of DEA-based hospital efficiency studies’, Socio-Economic Planning Sciences, 42(3): 158189.
Peacock, S.Segal, L. (2000), ‘Capitation funding in Australia: imperatives and impediments’, Health Care Management Science, 3(2): 7788.
Peñaloza, M.-C., Hardie, M., Wild, R., Mills, K. (2010), UK Centre for the Measurement of Government Activity – Public Service Output, Inputs and Productivity: Healthcare, Newport: Office For National Statistics,
Pilyavsky, A.Staat, M. (2008), ‘Efficiency and productivity change in Ukrainian health care’, Journal of Productivity Analysis, 29: 143154.
Pina, V.Torres, L. (1996), ‘Methodological aspects in efficiency evaluation of public hospitals’, Financial Accountability and Management, 12(1): 2136.
Prior, D. (2006), ‘Efficiency and total quality management in health care organizations: a dynamic frontier approach’, Annals of Operations Research, 145: 281299.
Propper, C., Wilson, D.Burgess, S. (2006), ‘Extending choice in English healthcare: the implications of the economic evidence’, Journal of Social Policy, 35(4): 537557.
Quentin, W., Geissler, A., Scheller-Kreinsen, D.Busse, R. (2010), ‘DRG- type hospital payment in Germany: the G-DRG system’, The Health Policy Bulletin of the European Observatory on Health Systems and Policies, 12(3): 47.
SAS (2004), Información al ciudadano sobre actividad y calidad de los hospitales, Sevilla: Servicio Andaluz de Salud.
SAS (2006), Annual Report of the Andalusian Health Service, 2006 (in Spanish), Sevilla: Servicio Andaluz de Salud.
SAS (2007), Modelo de financiación capitativa de Hospitales, Distritos de Atención Primaria y Áreas de Gestión Sanitaria, Sevilla: Servicio Andaluz de Salud.
Scheller-Kreinsen, D., Geissler, A.Busse, R. (2009), ‘The ABC of DRGs’, Euro Observer, 11: 15.
Shmueli, A., Intrator, O.Israeli, A. (2002), ‘The effects of introducing prospective payments to general hospitals on length of stay, quality of care, and hospitals’ income: the early experience of Israel’, Social Science & Medicine, 55: 981989.
Smith, P. C., Preker, A. S., Ligth, D. W.Richard, S. (2005), ‘Role of Markets and Competition’, in J. Figueras, R. Robinson and E. Jakubowski (eds), Purchasing to Improve Health Systems Performance, England: European Observatory on Health Systems and Policies Series. Open University Press, 102121.
Steinbusch, P., Oostenbrink, J., Zuurbier, J.Schaepkens, F. (2007), ‘The risk of upcoding in casemix systems: a comparative study’, Health Policy, 81(2): 289299.
Thomson, S., Foubister, T., Mossialos, E. (2009), Financing Health Care in the European Union. Challenges and Policy Responses. World Health Organization: European Observatory on Health Systems and Policies. Observatory Studies Series No. 17, 42–43, Copenhagen.
van Barneveld, E., Lamers, L. M., van Vliet, R.van de Ven, W. (2001), ‘Risk sharing as a supplement to imperfect capitation: a trade-off between selection and efficiency’, Journal of Health Economics, 20: 147168.
Vitikainen, K., Street, A.Linna, M. (2009), ‘Estimation of hospital efficiency – do different definitions and casemix measures for hospital output affect the results’, Health Policy, 89(2): 149159.
Vuorenkoski, L. (2008), Finland: Health System Review, in P. Mladovsky and E. Mossialos (eds), Health Systems in Transition, vol. 10, no. 4. Copenhagen: European Observatory on Health Systems and Policies Series, 1170.
Wilke, M., Höcherl, E., Scherer, J.Janke, L. (2001), ‘Introducing the new DRG-based payment system in German hospitals: a difficult operation?’, Health Care Systems in Europe, 2: 7985.
Recommend this journal

Email your librarian or administrator to recommend adding this journal to your organisation's collection.

Health Economics, Policy and Law
  • ISSN: 1744-1331
  • EISSN: 1744-134X
  • URL: /core/journals/health-economics-policy-and-law
Please enter your name
Please enter a valid email address
Who would you like to send this to? *


Altmetric attention score

Full text views

Total number of HTML views: 0
Total number of PDF views: 0 *
Loading metrics...

Abstract views

Total abstract views: 0 *
Loading metrics...

* Views captured on Cambridge Core between <date>. This data will be updated every 24 hours.

Usage data cannot currently be displayed