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The Economic Research Institute, Stockholm School of Economics SSE/EFI Working Paper Series in Economics and Finance

No 170:
The Impact of Internal Markets on Health Care Efficiency: Evidence from Health Care Reforms in Sweden

Ulf-G. Gerdtham (), Clas Rehnberg () and Magnus Tambour ()

Abstract: A purchaser/provider split together with output- based reimbursement were recently introduced by several Swedish county councils. These changes have been motivated by arguments of efficiency and consumer choice. This paper tests the null hypothesis that hospital services are provided as efficiently by county councils with internal markets as by county councils with budget reimbursement. We first estimate technical efficiency using data envelopment analysis and then we regress the efficiency scores as the dependent variable on new internal organisations in a multiple regression by use of pooled cross-section data for the 26 county councils for two years (1993 and 1994). The results reject our null hypothesis and we conclude that the organizational changes in the county councils improve health care efficiency. Our results further indicate that the potential savings in costs due to a hypothetical switch from a budget based allocation to a performance based allocation is about 13%. We also found some evidence indicating that county councils with a non-socialist political majority are relatively more efficient than those with a socialist regime and that large county councils are more efficient than small county councils.

Keywords: Internal markets; productivity; regression; analysis; pooled data; (follow links to similar papers)

JEL-Codes: D23; D24; I11; (follow links to similar papers)

33 pages, April 1997

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This paper is published as:
Gerdtham, Ulf-G., Clas Rehnberg and Magnus Tambour, (1999), 'The Impact of Internal Markets on Health Care Efficiency: Evidence from Health Care Reforms in Sweden', Applied Economics, Vol. 31, pages 935-945



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