THE DEVELOPMENT AND EVALUATION OF HOSPITAL PERFORMANCE-MEASURES FOR POLICY ANALYSIS

The purpose of this study was to develop and evaluate hospital perform ance measures to include aspects of hospital behavior beyond the tradi tional use of hospital profit margins for policy analysis. A number of measures have been used in the literature that are purported to refle ct a variety of hospital behaviors. The reliability and validity of th ese and new measures were assessed using descriptive statistics and fa ctor analysis on a sample of hospitals for a 3-year period. The sample consisted of all hospitals for which there were Medicare Cost Report and balance sheet data during the federal fiscal years 1987 through 19 89. Using a subset of three hospital groups, 33 measures were evaluate d, from which five were selected to represent the critical aspects of hospital performance important for policy analysis. The measures are: TEM, a new technical efficiency measure using data envelopment analysi s techniques; the current ratio, depicting short-term financial perfor mance; the ratio of long-term debt-to-net fixed assets, representing l ong-term viability; total margin, portraying profitability; and Medica re margin, characterizing Medicare's contribution to hospital financia l position. Each represents different aspects of hospital efficiency a nd financially viability.