Identifying the contribution to hospital performance among Chinese regions by an aggregate directional distance function.

In this paper, we examine efficiency and total factor productivity for hospitals operating in China between the years of 2009-2016. Given reforms in China focusing on the hospital sector, it has been demonstrated that efficiency and productivity are important in meeting the overall objective of meeting more accessibility to hospital care for the population. Measuring an aggregate directional distance function is in itself a non-parametric approach, we report on the decomposition of hospital performance and found that between 2009 and 2010, technical inefficiency (using resources inefficiently) dominated overall inefficiency but beyond 2011-2016, mix inefficiency (misallocation of resources) was higher. Furthermore, an additive total factor productivity (TFP) indicator is proposed to capture contributions of individual provincial (or group) hospital performance to the total productivity gain. We also report that mix inefficiency had growth throughout this time period indicating a catching up in the correct mix of inputs. This finding is worth following as hospital reform in China also focuses on utilizing the right labor and capital mix in producing efficient care.