9 - Brief Overview of Production Theory for Analyzing Healthcare Performance

Summary

This chapter provides basic production theoretical underpinnings used in modeling and measuring performance in the healthcare realm, which covers a host of institutions, practitioners, regulators, insurers, and patients, among others. This is a difficult task given the complexity of the healthcare sector. In general, the authors seek some meaningful benchmarks to use in assessing performance that are rich enough to model these complex entities. They begin with introducing technology or sets, which include as elements the many inputs used to treat patients in clinics or hospitals, which are in turn employed to improve patient outcomes (outputs), which may be multidimensional as well. They introduce key axioms that are imposed on these sets. However, although key in determining the benchmark or best practice possibilities, these sets are not practical for determining the performance of individual entities relative to the benchmark. More practical are functional representations of these multidimensional sets that are easy to estimate, which include distance functions and their dual value functions. These functions inherit properties from their respective technology sets, which in turn require certain specifications of their functional form if they are to be estimated parametrically.