Efficiency and Program‐Contract Bargaining in Spanish Public Hospitals

Abstract This paper analyses the evolution of productivity in Spanish public hospitals during the period characterised by the use of program‐contracts. The results demonstrate that a significant improvement has occurred. The decomposition of the Malmquist productivity index shows that efficiency change has been the main contributor to productivity improvement. We also analyse the dynamic implications of program‐contract bargaining. In particular, the data support the hypothesis that the bargaining process has been subject to a ratchet effect, i.e., the more a hospital does today, the more the hospital is asked to do in the future. This result threatens the credibility of the program‐contract as an incentive system .