Impact of conversion to Critical Access Hospital status on hospital efficiency

This study examines the impact of Critical Access Hospital (CAH) Program on hospital efficiency using a two-stage approach, where data envelopment analysis is used in the first stage to estimate cost, technical, and allocative efficiency scores of a sample of rural hospitals. Densities of efficiency scores of CAHs and prospectively paid rural hospitals are estimated and compared using a nonparametric kernel density estimator and a bootstrap-based test. In the second stage, efficiency scores are regressed on environmental variables using bootstrapped truncated regressions. Density analysis and results from bootstrapped truncated regressions show that CAHs are less cost and allocatively efficient compared to prospectively paid rural hospitals, without being less technically efficient. Relative to their pre-conversion selves, CAHs appear to be slightly less allocatively efficient, while they are slightly more technically efficient and no less cost efficient. Overall, our results suggest that the CAH Program may have decreased the allocative and cost efficiencies of those rural hospitals that converted to CAH status relative to prospectively paid rural hospitals, without significantly increasing their technical efficiency.