Technical efficiency in the presence of desirable and undesirable outputs: a case study of selected district referral hospitals in Uganda.

Abstract

The general practice in technical efficiency measurement for health providers has been to ignore additional products of most transformation processes that can be classified as “undesirable outputs” — which are a subset of the output set. Traditional Data Envelopment Analysis (DEA) technique is modified to give a more realistic and comprehensive score of production efficiency considering both, desirable and undesirable outputs. This is applied to a sample of Uganda’s district referral hospitals over the 1999-2003 period. The modified DEA credits a hospital for its production of desirable outputs but penalizes it for its production of undesirable outputs (patient deaths). Without the inclusion of these factors, the efficiency evaluation becomes a purely technical measure of the system alone, and does not account for the interaction of the system with the surrounding environment. In addition, there are also technological dependencies arising due to the relationships between the desirable and the undesirable outputs.