The data envelopment analysis and stochastic frontier approaches to the measurement of hospital efficiency in Kenya
After independence in 1963, the government of Kenya pledged to fight diseases, ignorance and poverty in the country. The policies that the government has pursued over the years have had a direct impact on health status of Kenyans, as evidenced by a steady reduction in crude death rate, a decline in fertility, and an increase in life expectancy at birth among others. These gains notwithstanding, reversal in health status trend is evident, as the child mortality rate is now on the increase. Despite the massive expansion of health infrastructure after independence, the inability of the government to effectively provide health services became acute in the 1980s due to a sharp increase in demand for health services. The growing lack of resources in the public health sector resulted in a decline in efficiency and quality of government health services. The government responded to these adverse developments by undertaking a bold programme of reforms aimed at improving efficiency at public health facilities. The purpose of this study was to measure efficiency in government hospitals over the period 1995-2000 when the reforms were implemented. In order to achieve this objective, a frontier cost model was estimated using data from a sample of 41 public hospitals in Kenya. This sample size represented about 40% of the public hospitals in the country. Secondary data on recurrent expenditure, number of inpatients and outpatients during the study period augmented the data from the hospital sample. The estimation results showed that all the 41 hospitals recorded steadily increasing efficiency levels during the study period. The amount of recurrent expenditure incurred by the sample hospitals was approximately Ksh 13 billion over the study period, against a background of gross inefficiency in resource use. Had the hospitals operated efficiently over this period, savings in financial terms could have been between Ksh 1 billion and Ksh 1.4 billion. The results showed that the reforms implemented by the Ministry of Health contributed to efficiency improvements in public hospitals. Another finding is that efficiency measures by the two methods employed (data envelopment analysis and stochastic frontier approach) were similar for the overall sample but differed significantly across individual hospitals. The results suggest that the Ministry of Health should put more effort to reducing inefficiency in service provision, as this can be done. Moreover, there is need for the Ministry to maintain a database on the inputs used by each hospital and services it provides, to facilitate measurement of efficiency on an annual basis, as efficiency information is key to the upgrading of service quality.