Decomposing Organizational Productivity Changes in Acute Care Hospitals in Tennessee, 2002-2006: A Malmquist Approach*

After the passage of the Patient Protection and Affordable Care Act, the survival and the productivity of hospitals are a critical topic in health care management. This study measured the productivity of acute care hospitals in Tennessee, applying the DEA-Malmquist index, which can be decomposed into a technical efficiency and technological change index in relation to factors such as size, ownership, location, and network. This draws on utilization data and financial statements from 144 acute care hospitals in Tennessee from 2002 through 2006. The analysis indicates that community hospitals in Tennessee were generally inefficient. The community hospitals in Tennessee suffered both with respect to technological change and technical efficiency, with the latter playing a relatively more important role. This study finds the bigger-sized, urban, public or nonprofit, strategically allied hospitals to be more productive relatively speaking and suggests that community hospitals in Tennessee need to upsize their facilities or make other adjustments, such as changing their cost structure and the way they operate their facility or bringing in new management to increase productivity. Government and health policy makers also need to develop and enact health policies to ensure that hospitals are both able to make technical progress and improve efficiency and thereby increase productivity.