Review of Industrial Organization
13: 447–466, 1998.
1998 Kluwer Academic Publishers. Printed in the Netherlands.
Market Structure and Hospital Efﬁciency:
Evaluating Potential Effects of Deregulation in a
National Health Service
ALIA DALMAU-MATARRODONA and JAUME PUIG-JUNOY
Universitat Pompeu Fabra, Department of Economics, Trias Fargas 25-27, Ediﬁci Jaume I, 08005
Abstract. In this article we examine the potential effect of market structure on hospital technical
efﬁciency as a measure of performance controlled by ownership and regulation. This study is relevant
to provide an evaluation of the potential effects of recommended and initiated deregulation policies in
order to promote market reforms in the context of a European National Health Service. Our goal was
reached through three main empirical stages. Firstly, using patient origin data from hospitals in the
region of Catalonia in 1990, we estimated geographic hospital markets through the Elzinga–Hogarty
approach, based on patient ﬂows. Then we measured the market level of concentration using the
Herﬁndahl–Hirschman index. Secondly, technical and scale efﬁciency scores for each hospital was
obtained specifying a Data Envelopment Analysis. According to the data nearly two-thirds of the
hospitals operate under the production frontier with an average efﬁciency score of 0.841. Finally, the
determinants of the efﬁciency scores were investigated using a censored regression model. Special
attention was paid to test the hypothesis that there is an efﬁciency improvement in more competitive
markets. The results suggest that the number of competitors in the market contributes positively to
technical efﬁciency and there is some evidence that the differences in efﬁciency scores are attributed
to several environmental factors such as ownership, market structure and regulation effects.
Key words: Geographic markets, market concentration, technical efﬁciency, data envelopment
analysis, censored regression model.
Deregulating policy measures promoting market reforms in health care markets
are common in all health care systems of developed countries (Abel Smith and
Mossialos, 1994). A coincidental point in health care reforms of National Health
Services (NHS) lies in the introduction of competition among producers of health
services, specially among hospitals, by splitting ﬁnancing, contracting and produc-
ing functions. Competition may be achieved by the introduction of quasi-markets
or internal markets (Maynard, 1991) even in a publicly ﬁnanced health care system,
with publicly and/or privately owned producers. In all cases the degree of market
This paper is part of a research supported by the Comisi
on Interministerial para la Ciencia y la
ıa del Ministerio de Educaci
on y Ciencia under contract SEC94-0192.