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April 24, 2014STUDY: EXPERIMENTAL MEASURES OF OUTPUT AND PRODUCTIVITY IN CANADIAN HOSPITAL SECTOR, 2002 TO 2010 The main objective of this study was to develop an experimental direct output measure for the Canadian hospital sector to estimate the labour productivity in Canada’s hospital sector. Labour productivity is a measure of economic output per unit of labour input. In the past, the volume of output was measured by the volume of inputs, such as labour costs for doctors, nurses, administrative staff, consumption of capital and intermediate inputs. An input-based output measure assumes that there are no productivity gains in the health care sector. As a result, it does not provide a measure of productivity performance for the sector.
A new experimental direct output measure of the hospital sector was produced by using the number of inpatient and outpatient cases by type for the Canadian hospital sector to estimate this sector's productivity.
This new output measure is based on the notion that the output in hospitals represents the treatment of a disease or condition. As treatments of different diseases and conditions involve different types of services, weights based on unit costs of treatments for each type of inpatient and outpatient case are applied to establish the direct output measure.
The volume index of the output of the hospital sector is estimated from aggregating the number of inpatient cases and outpatient cases using their cost share as weights. It also examines two potential sources of bias in this cost-weighted volume index: substitution bias and aggregation bias. The analysis reveals a large substitution bias in the volume index when inpatient treatment and outpatient treatment of the same medical disease or condition are aggregated using their respective unit costs as weights. The substitution bias essentially captures quality improvements associated with the shift away from inpatient treatment toward outpatient treatment. The volume index of the hospital sector output corrected for substitution bias increased 4.3% annually during the period 2002 to 2010.
The study estimated that labour productivity based on the direct output measure have increased 2.6% annually over the 2002 to 2010 period. This represents annual growth of 4.3% for output and 1.7% for hours worked in the sector. The labour productivity growth in hospitals was greater than the annual growth of 0.7% for the business sector over the same period.
Source: Statistics Canada’s research paper “Experimental Measures of Output and Productivity in the Canadian Hospital Sector, 2002 to 2010", part of the Canadian Productivity Review (15-206-X) series.