Has the National Health Insurance Scheme improved hospital efficiency in Taiwan? Identifying factors that affects its efficiency

Striking a balance between containing costs and improving the quality of healthcare is an important issue. In this paper, we used Data Envelopment Analysis (DEA) with variable returns-to-scale to evaluate improvements in healthcare efficiency in terms of cost (input) and quality (output) in Taipei hospitals from 1989 to 2001. We also adopted Tobit regression analysis to determine which factors were the major determinants of efficiency during the study period. Our findings showed that efficiency did not improve after the implementation of the National Health Insurance (NHI) Program. The factors that affected efficiency included the proportion of elderly patients, competition, average Length of Stay (LOS), the adoption of new technologies and the number of beds (scale). The increase in the number of elderly covered by the NHI scheme compared to previous schemes, the increase in the average LOS and inefficient usage of beds were the major factors responsible for the decline in hospital efficiency. Our primary suggestions are to enhance efficiency and cost-effectiveness for the provided healthcare, and as such: (1) the government should expand health promotion and disease prevention programs for the elderly; and (2) hospital managers should reduce the average length of stay and force to the efficient usage of beds.