Dissertations, Theses, and Capstone Projects

Date of Degree


Document Type


Degree Name





Michael Grossman

Committee Members

Ted Joyce

Robert Kaestner

Subject Categories



The investigation and measurement of administrative efficiency is an issue of great concern for health care policy decision makers and has important implications for the efficiency of the overall health care sector itself as well as for the cost containment efforts and the restructuring of the health care system.

The administrative cost efficiency of the United States health care system has received much attention during the last years, and has been under continuous criticism since it became widely known that the country's administrative costs are higher than those of any other country in the world.

As criticism on administrative inefficiency of the U.S. health care system has intensified, the need for detailed empirical studies has become imperative. To answer the question of administrative efficiency, this study undertakes an empirical investigation of the largest component of the health care sector; the hospital sector. The variety of proposed health care reform proposals that involve the reduction of administrative costs of hospitals consider the application of Electronic Data Interchange as the potential mechanism towards streamlined administration, cost efficiency and cost containment.

Efficiency is the main concern of all economic sectors and a variety of models have been developed to examine every aspect of it. In this dissertation, the two leading approaches to efficiency measurement (Stochastic Frontier and Data Envelopment Analysis) are used and compared. To increase the reliability and comparability of estimates, a variety of models are estimated.

In addition, an integrated model that incorporates the characteristics of the Stochastic Frontier with Data Envelopment Analysis techniques is developed. The model provides a new approach for incorporating "Technologically Consistent" information into DEA in the form of weight restrictions.

In this integrated framework the extent of administrative efficiency of hospitals is evaluated. In a second stage analysis, the determinants of inefficient performance are assessed with special attention to the effect of Electronic Data Interchange.

The results support the common belief that hospital administration is inefficient. Hospital administration appears to be the most significant determinant of hospital inefficiency. Furthermore, the results indicate that Electronic Data Interchange could be used as a mechanism of reducing administrative inefficiency.


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