Social Science & Medicine 56 (2003) 343353

Technical and cost efciency of oral health care provision in Finnish health centres
Miika Linnaa,*, Anne Nordblada, Matti Koivub
a

National Research and Development Centre for Welfare and Health, Siltasaarenkatu 18, PO Box 220, 00531 Helsinki, Finland b Helsinki School of Economics, Helsinki, Finland

Abstract In this study we measured the productive efciency of public dental health provision across Finland. The analysis was based on data envelopment analysis (DEA) using linear programming. In addition, we investigated various factors explaining the technical and cost efciency of public dental care using a parametric Tobit model. These analyses revealed substantial variation in productive efciency between health centres in different municipalities. The level of cost inefciency was generally between 20% and 30%. Good dental health of the population, high rates of unemployment and high per capita expenditure on primary care in the municipality were associated with technical and cost inefciency. According to the results, cost efciency would not be improved by shifting input allocation towards more auxiliary manpower in health centres. Individual efciency scores were clearly sensitive to the choice of output specication. Changing the unit of output measurement from visit- to patient-based measures affected markedly the ranking of dental health centres. However, the set of exogenous correlates associated to inefciency was strikingly similar for both types of output specication. More resources are needed if the coverage of public dental care is extended to all age groups. The health centre specic efciency scores obtained in this study can be used locally to evaluate, design and implement structural changes in the production processes. r 2002 Elsevier Science Ltd. All rights reserved.
Keywords: Oral health; Financing; Cost efciency; Data envelopment analysis; Finland

Introduction In recent years, numerous policy initiatives for cost containment and productivity increase in public dental services have been made in Scandinavian countries. During the same period, reductions in public spending have intensied the need for efciency improvements in all public services. In Finland, subsidised dental care is provided by public health centres for all citizens born after 1956 and also for some special groups, e.g. veterans. The coverage provided for other groups (usually older citizens) varies greatly across the municipalities which host and fund the health centres. The lack of continuity is considered a serious problem both from
*Corresponding author. Tel.: +358-9-3967-2295; fax: +3589-3967-2485. E-mail address: miika.linna@stakes. (M. Linna).

equity and efciency perspectives, since access to subsidised public dental care is determined by place of residence, and dental health is usually better in younger age groups. The evaluation of the possibility and consequences of extending the services to older age groups requires knowledge of the production technology, productivity and efciency of public dental services. However, none of the scarce studies on the productivity of dental services has measured technical efciency (TE), which is often a rather important determinant of productivity. Most of the productivity studies of dental practices in the United States (Gift, Newman, & Loewy, 1981; Gotowka, 1985) have concerned private dental provision (Mitry, Johnson, & Mitry, 1976; Saving, 1978; Nash & Wilson, 1979; Feldstein, 1974; Arnold, 1975; Lipscomb & Schefer, 1975). Research issues included the operation of dental care markets and how dental

0277-9536/02/$ - see front matter r 2002 Elsevier Science Ltd. All rights reserved. PII: S 0 2 7 7 - 9 5 3 6 ( 0 2 ) 0 0 0 3 2 - 1

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care costs can be contained through allocative decisions in production. Some studies have suggested that certain input characteristics and allocations (e.g. age and gender of dentist and, dental assistant to dentist ratio) can have signicant effects on productivity (Schefer & Kushman 1977; Kushman, Schefer, Miners, & Mueller, 1978; Gray, 1982). Sintonen (1986) showed that the number of hours spent at work without treating patients was the most important factor explaining the 14% lower productivity of public compared to private dentists in Finland. There was no systematic association between the age of the dentists and the time spent per child patient. The result has been later conrmed by a Norwegian study (Wang, 1994) which indicated that the professional experience of the dentist did not affect productivity in the treatment of children. Substantial variation in costs per patient across health centres was found in a Finnish study by Utriainen and . (1990). A more recent report on public dental Widstrom clinics in health centres concluded that greater productivity was found in health centres with a higher share of young patients and a high ratio of auxiliaries to dentists (Vehkalahti & Helminen, 1992). The results of a Norwegian study suggest that it is possible to inuence productivity in child dental care without compromising the dental health of the children (Wang, 1994). Substantial variation in the productivity of public dental clinics in Norway also emerged. According to this study, the individual dentist and hygienist can reduce the mean overall treatment time per child by extending recall intervals. On an administrative level, the time dentists spend per child may be reduced by employing more dental assistants and hygienists, although the latter increased the total personnel time per child. A time study method (TSM) (Swedberg, Malmqvist, & Johnsson, 1993) was tested in a study of dental care activities carried out within the public dental service in Sweden. The researchers concluded that TSM is essential for acquiring knowledge of the activities involved in dental care production. TSM was used again in another Swedish study (Swedberg, 1995), in which the most time-consuming patient age groups were the 1319-year olds (dentist and dental hygienist) and the 36-year olds (dental assistant). In the case of the adults, the distribution of treatment times varied only slightly among the age groups, and according to the personnel. The CE in the provision of public dental services was analysed in a recent Finnish study, where CE scores were obtained using data envelopment analysis (DEA) (Nordblad, Linna, Luoma, & Niskanen, 1996). The results indicated signicant differences in CE between health centres, which could not be explained by the age prole of the patients. However, it remained unclear

how much the results were affected by the possible choice of wrong specication for the scale returns, or by the problems of dening the output measures correctly. The differences in efciency and determinants of efciency found between studies seem to depend on the data and methods used. It is possible that the estimated sources of inefciency depend at least partly on some unobserved environmental characteristic which can lead to omitted variable bias in the results. Financial incentives and constraints provide an example of such variables, yet there are not many studies which have explored the relationship between nancial arrangements and productive efciency. Previous studies of health expenditures have found that income level, proportion of public nance, percentage of funding coming from central government and productive efciency can explain variation in health care expenditures (Gerdtham, Sogaard, Andersson, & . . kkinen, & Luoma, 1995). Various Jonsson, 1992; Ha regulatory measures, political pressure and legal obligations often dene the extent to which there is room for health centres to pursue their objectives. Every municipality, alone or in federation with other municipalities, organises primary health care for its inhabitants. Health centres are nanced by national and municipal taxes which means that the need to minimise costs or exert pressure through the organisation to improve perfor. rvio, . mance is weak. A recent study by Luoma, Ja Suoniemi, and Hjerppe (1996) also showed that various economic and structural factors affect productive efciency in primary care. It is also possible that the methods used in some of the earlier studies are not fully consistent with modern production theory. These problems and concerns motivated us to use modern techniques based on microeconomic production theory which have gained . re, wide popularity among productivity analysts (Fa Grosskopf, Lindgren, & Roos, 1994). Here, we used nonparametric method (DEA) which has a number of desirable features compared to traditional methods: (1) a minimal assumption for the functional specication is required for the underlying production technology, (2) it can easily accommodate several input and output variables with different units of measurement, and (3) it does not require a priori chosen weights for the aggregation of inputs and outputs. The last feature makes it especially suitable for the modelling of public sector production, since price or cost data seldom reect the true opportunity costs or the expenditure data are not comparable across all units. Both technical and cost efciency in the provision of public dental services were estimated in this study. A two-stage procedure was used: efciency scores were rst calculated for each health centre, and these scores were then explained using a variety of factors expected to affect the observed inefciencies. These factors included

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various organisational, institutional and environmental features of the health centres.

Efciency measures For assessing the technical and cost efciency of dental health centres, we used nonparametric DEA which utilises linear programming techniques in the calculation of unit specic efciency scores. DEA constructs a piecewise linear efcient frontier which serves as the reference in the evaluation of efciency. In DEA, the production possibilities set is usually assumed to be convex and to exhibit constant returns or variable returns to scale; it is not necessary to make assumptions about the parameters and functional form of the production correspondence. The important advantage of DEA is that it is relatively easy to apply when the decision-making units (DMUs) use multiple inputs to produce multiple (incommensurate) outputs. The efciency scores are determined by the ratio of the sum of weighted outputs to the sum of corresponding weighted inputs. The weights are determined so as to show the DMU at maximum relative efciency (Charnes et al., 1978). DEA is based on relative efciency measures proposed by Farrell (1957), and in this framework a health centre is judged to be efcient if it is operating on the best practice production frontier. An example of the DEA efciency concept is given in Fig. 1 which illustrates a simplied production technology of one output and two inputs. The shaded area Ly indicates all the feasible combinations of inputs 1 and 2 to produce output y. All units on the efciency frontier, the piecewise linear isoquant Ly; operate efciently by

producing the same output with minimal combinations of the two inputs. Units C and D are efcient and receive a TE score of 1. Unit A does not lie on the frontier and is technically inefcient (TE score o1). The TE score for unit A is calculated by the ratio l OF=OA; which is directly related to unit As distance from the efcient frontier. Unit As input vector xA can be contracted radially up to point F and still remain capable of producing output y. Fig. 1 can also be used to illustrate the determination of CE: A cost efcient mix of inputs requires that the slope of the production frontier coincides with the input price vector w0 : Unit D achieves both technical and cost efciency since it uses both inputs optimally given their relative prices. Unit A could reach TE by reducing its use of inputs by lA xA (point F) but due to allocative inefciency (measured by OE=OF) point F fails to minimise cost in the production of output y. Overall CE can thus be divided into two components of allocative and technical efciency. TE measures how the levels of all the used inputs, given certain amount of outputs, compare with the optimal, best practice use of inputs. Allocative efciency refers to the extent to which the input choices fail to satisfy the marginal equivalences for cost minimisation. Technical efciency In the production of outputs y y1 ; :::; ym ARm ; dental health centres use inputs x x1 ; :::; xk ARk : Assuming convex production technology, the TE measures can be estimated by solving the following linear program, which gives the input oriented technical inefciency component: Minz;m s:t: m z Y Xy0 ; z X Xm x0 ; zi X0; Pn i1 zi 1; 1

Fig. 1. Efcient frontier and efciency measures in two-input, one-output case.

where Y is an n m matrix of observed outputs and X is an n k matrix of inputs for each health centre. z is a 1 n vector of intensity variables The technical inefciency component is given by solution TE m . This is a reciprocal measure of the distance function by Farrell (1957) and Shepard (1970). In model (1), the summation constraint on intensity variables z impose variable returns to scale (VRS). Eliminating the summation constraint changes the model to constant returns to scale (CRS). The scale efciency measure SCE can be calculated as the ratio of CRS TE to VRS TE; SCE TECRS =TEVRS :

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Cost efciency The standard measure of CE using nonparametric DEA models is obtained via a two-stage process: (i) estimation of the minimum price-adjusted resource usage given the technological constraints and (ii) comparison of this minimum to actual, observed costs (Ferrier & Valdmanis, 1996). Another possibility for obtaining CE estimates is to measure a global cost efciency, where total costs are used as the input variable. The usual meaning of allocative inefciency is that the input factor mix is suboptimal with respect to prevailing input prices when different sets of prices are dened exogenously for each DMU. In Finland, where wages are centrally negotiated and price variation is fairly small, the disparity between the two measures of CE is likely to be insignicant. Assuming identical input prices, CE can be calculated by solving the following linear program: Minz;lCE s:t: lCE z Y Xy0 ; z C plCE c0 ; zi X0; Pn i1 zi 1;

The choice of explanatory variables Variation in efciency can be caused by organisational characteristics of the health centres and differences in the environment in which production occurs. In this study, we used various types of explanatory variables to control for differences in (i) economic incentives and nancial constraints, (ii) structural characteristics of production technology and (iii) patient case-mix and demand for dental care. Competitive pressure, primary health care organisation, nancial status of the local authorities and various geo- and demographic factors were used to describe economic incentives and constraints in the analysis. For example, if municipalities or municipality federations receive generous subsidies, incentives for exercising cost control within primary care may weaken (Luoma et al., 1996). To explore the effects of nancial incentives on efciency we used four variables: the percentage of state subsidy, the competitive pressure, income subject to local government taxation and resources per capita used for primary care in the municipality. According to economic theory, the degree of competition may shape the behavioural patterns of health care providers, and a high degree of competition is expected to increase efciency. A high subsidy rate lowers the costs a municipality has to pay for inefcient use of resources. Since there is also a considerable informational asymmetry between administrations and municipal boards to which the health centre administrations are accountable, it is possible for the health centres to choose an inefcient level of performance. If resources are generous, the municipal board may have weaker incentives to monitor the CE of their health centre. Thus also higher income subject to local government taxation and high level of resources per capita used for primary care may be positively correlated with inefciency. Differences in production technology were controlled using three variables which take into account the scale of operation and differences in input mix. The explanatory variables for the size of a health centre were the number of residents in the municipality hosting the health centre (POP) and the number of residents squared (POP 2). The variation in the health centres decisions about input allocations was measured by the percentage of dentist full-time equivalents (FTEs) to the FTEs of other personnel (DENSHARE) and the percentage of material expenditure to total operating costs (MATSHARE). There are not many possible quality or outcome indicators available from routine primary care statistics. However, in this study it was possible to measure the dental health of the patients by an index which gives the average number of decayed, missing or lled teeth per person (DMF).

where c0 is a scalar representing a health centres cost level, and C is the n 1 matrix of observed costs. Eliminating the summation constraint changes the model to CRS. The econometric model In the second part of the study, the estimated technical and cost efciency scores were analysed by regressing them against a set of observed characteristics of the health centres and their environments. For DEA scores, a censored Tobit model was used in the analysis (Greene, 1993), since both cost and technical efciency scores take only nonnegative values between 0 and 1. The efciency scores EFF TE; CE were modied to describe the degree of inefciency by setting INEFF 1=EFF 1: In this case the inefciency scores are regressed, i.e. the negative sign of a coefcient means an association with efciency, which allows it to be modelled by the following form: INEFF P
j

bj xj n; if INEFF p0;

INEFF 0 INEFF INEFF

if INEFF > 0;

where nBN 0; s2 and bj are the parameters for explanatory variables xj :

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Data The data were collected from the annual reports of the Finnish health centres in 1995. Systematic, subsidised dental care is provided by the health centres for patients born after 1956 and some special groups, e.g. students. Dental care is free of charge for patients under the age of 19. Some health centres provide free dental health services to all residents of the municipality. The 1995 data were available from 231 of the total of 258 health centres. Data were examined with DEA, and those units which registered high or unrealistically low scores were asked to check their gures. Some errors were found and corrected. Finally, only three health centres were excluded because of invalid information, leaving a total of 228 health centres. Total operating costs of public dental services in the health centre was used as the cost variable (Table 1). This cost variable takes into account the main input price differences: the cost-of-living bonus and the bonus for services in remote areas. As output variables we used the number of treated patients and dental visits in three age categories, and visits according to the employee category (dentist, hygienist or dental assistant) in charge of the visit. The three age categories used were: 018year olds, 1939-year olds and over 39 years. Input variables were constructed by collecting the total consumption of materials and equipment in monetary

units and FTEs in four employee categories: (i) dentists, (ii) hygienists, (iii) dental assistants and (iv) others (e.g. administrative staff). Because there was some variation in how the health centres recorded their staff in the registers, we minimised the risk of misclassication by combining the four input categories into two input variables: one for dentists and one for other employees (Table 1). In the measurement of patient output, a crucial conceptual distinction is whether the output is the actual provision of the medical treatment itself or the resulting improvement in the patients health status. It is fair to say that the outputs used here are only intermediate outputs or approximations of the gains in dental health. On the other hand, it can be argued that the lack of an appropriate case-mix measure for dental care is less problematic than in specialised hospital care since the variation of resource use across patient cases is signicantly smaller. However, there is no widely accepted output classication system or standard available for dental care patients/ visits. Here, we used two distinct approaches to dening output: the visits model and the patients model. The visits model uses separate visits (grouped by age and according to employee category visited) as output. It is possible that some health centres articially boosted their output by splitting an individuals treatment

Table 1 Input, output and cost variables used in the analysis Variable names Output variables Output set 1 (patient output model) PAT018 PAT1939 PAT>39 Output set 2 (visit output model) VDEN018 VOTH018 VDEN19-39 VOTH19-39 VDEN>39 VOTH>39 Input variables DENFTE OTHFTE MATUSE Cost variable TCOST Denition

Number of patients in the age group 018 years Number of patients in the age group 1939 years Number of patients in the age group over 39 years

Total number of visits to dentists in the age group 018 years Total number of visits to hygienists and dental assistants in the age group 018 years Total number of visits to dentists in the age group 1939 years Total number of visits to hygienists and dental assistants in the age group 1939 years Total number of visits to dentists in the age group over 39 years Total number of visits to hygienists and dental assistants in the age group over 39 years

Total number (in FTE) of dentists Total number (in FTE) of other employees Total costs of materials and equipment

Total operating costs in the health centre

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episodes into several separate visits. This possibility was accounted for by measuring the output as individual patient episodes, which may consist of one or more visits to dental care. Explanatory variables In the second part of the study, the estimated efciency scores were analysed by regressing them against a set of observed characteristics of the dental health centres and their environments. Some of the used explanatory variables reect choices which can be directly controlled through managerial decisions. These include the degree of specialisation, use of modern technology, input allocation, quality control and scale of operation. The other category of explanatory variables reects environmental characteristics beyond the inuence of managerial actions. Competitive pressure, primary health care organisation, nancial status of the local authorities and various geo- and demographic factors (such as the dental health of the population) are some examples. Table 2 shows the set of explanatory variables used in this study. The variation in the health centres decisions about input allocations was measured by the percentage of dentist FTEs to the FTEs of other personnel (DEN-

SHARE) and the percentage of material expenditure to total operating costs (MATSHARE). The effect of exogenous economic factors was tested using the average income of the residents in the municipality (PINCOME) and the UNEMP. The municipalitys need for state subsidies was rated on a 110 scale, here represented by the variable SUBSIDY. Exogenous factors that might affect health centres efciency included the average level of residents education measured as the percentage of high-school graduates (EDUC), resources used for primary care and health education (PINVEST) and an index of the need for health services (HEALTH) measured as the proportion of the municipalitys residents on disability pension. Although competition is not a prominent feature of health provision in Finland, the inuence of competition from private clinics was measured by an index (PRIVATE) relating to the per capita expenditure on private dental care in the municipality. Some municipalities have sought economies of scale in their primary care provision by establishing a joint organisation of several municipalities. Using a dummy variable (UDUMMY), it was decided to test whether these joint municipal health centres had efciency advantages compared to single municipalities in the provision of oral health.

Table 2 Explanatory variables and denitions Variable name DENSHARE MATSHARE PINCOME UNEMP EDUC HEALTH DMF PRIVATE PINVEST SUBSIDY JDUMMY POP POP*2 Denition Percentage of total dentist FTEs to total FTEs of other personnel Percentage of material expenditure to total operating costs (MATUSE/TCOST) Average income of residents in the municipality Unemployment rate in the municipality Percentage of residents with more than secondary school education Proportion of residents on disability pension Average dental health of the municipal population Per capita expenditure on private dental care in the municipality Resources per capita used for primary care and health education Municipalitys rating for state subsidies Dummy variable indicating if the provider is administered by a joint board of municipalities Size of the municipal population POP squared

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Results Preliminary tests indicated that the production of dental care substantiated with the assumption of CRS. Thus LP models (1) and (2) were used to calculate individual efciency scores for four different DEA models using the assumption of CRS (Table 3). The results indicate large differences across health centres and some differences between model specications. The average CE level was between 0.72 and 0.81 in the primal models, and between 0.62 and 0.79 in the cost models (Table 4). The correlations between the patient and visit models were 0.61 (primal models), and 0.44 (cost models), which clearly shows that the denition of output has some importance in the interpretation of individual efciency scores. CE scores yielded moderate correlations (0.680.71) with TE scores, which suggests that a large proportion of cost inefciency is due to technical inefciency. The observed differences between visit output model and patient output model (Fig. 1) were somewhat expected since the output denitions are conceptually very different. Furthermore, it is well known that DEA analysis is sensitive to variable selection. As the number of outputs increases the ability to discriminate between the DMUs decreases. The more variables are added the greater becomes the chance that some inefcient unit dominates in the added dimension and becomes efcient (Nunamaker, 1985; Smith, 1997). This is clearly visible in Fig. 1 where PMODEL1 yields a larger number of efcient units (efciency score=1.0). Table 4 indicates that the range of efciency scores from 1.0 (highest) to 0.35 (lowest) was quite similar across the models. However, there was quite a large disparity in average efciency scores. The 35 health centres that received a CE score below 0.50 were mainly small ones located in northern (rural) areas of Finland. CE scores were analysed further by dividing them into two groups of the 30 highest and 30 lowest CE scores. The MannWhitney test revealed that the northern health centres were slightly over-represented in the

lowest efciency group compared to those in the other areas of Finland. Determinants of CE The used econometric model could explain only a small part of the variation in efciency as indicated by the low values of the goodness of t statistics R2 : The values obtained from the ordinary least-squares estimation were between 0.09 and 0.24. The results of the Tobit model indicate (Table 5) that the primal and cost models both gave systematically lower efciency scores to dental health centres located in areas of high unemployment and where the per capita expenditure on primary care was high. The effect of patients dental health (DMF) was signicant in technical and cost efciency models using visits as output. Competition from private practices had no measurable effect on efciency.
Table 4 Efciency scores in DEA models Percentile The distribution of efciency scores PMODEL1 PMODEL2 CMODEL1 CMODEL2 Min. 10th 20th 25th 30th 40th Med. 60th 70th 75th 80th 90th Max. 0.42 0.68 0.72 0.74 0.75 0.78 0.83 0.87 0.95 0.99 1.00 1.00 1.00 0.44 0.58 0.62 0.64 0.66 0.69 0.75 0.78 0.83 0.88 0.89 1.00 1.00 19 0.39 0.65 0.69 0.71 0.74 0.76 0.80 0.83 0.87 0.89 0.93 1.00 1.00 18 0.37 0.53 0.57 0.59 0.60 0.63 0.65 0.68 0.71 0.73 0.74 0.83 1.00 4

Number of 47 efcient units

Table 3 Model names and specications Name Primal models PMODEL1 (visits) PMODEL2 (patients) Cost efciency models CMODEL1 (visits) CMODEL2 (patients) Outputs VDEN018, VOTH018, VDEN1939, VOTH1939, VDEN>39, VOTH>39 PAT018, PAT1939, PAT>39 Inputs DENFTE, OTHFTE, MATUSE DENFTE, OTHFTE, MATUSE

VDEN018, VOTH018, VDEN1939, VOTH1939, VDEN>39, VOTH>39 PAT018, PAT1939, PAT>39

TCOST TCOST

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Table 5 Technical and cost efciency (TE and CE) explained by various factors using Tobit model (3) Explanatory variables TE (PMODEL1) Coefcient Constant DENSHARE MATSHARE UNEMP EDUC HEALTH PRIVATE PINVEST POP POP2 JDUMMY DMFIND SUBSIDY INCOME s Log-likelihood R2 (OLS) 68.776 4.407 281.491 1.421 6.637 8.161 225.301 2.654 0.351 0.009 6.468 1.815 0.158 0.201 19.308 998.513 0.163 (t-ratio) 1.63 0.82 4.00 3.39 0.14 0.83 1.31 0.88 0.40 0.52 1.77 2.00 0.39 0.78 TE (PMODEL2) Coefcient 98.599 16.473 382.574 0.620 42.584 8.742 139.340 1.150 1.941 0.039 9.279 0.149 0.005 0.121 23.890 1047.065 0.162 (t-ratio) 1.91 2.51 4.43 1.21 0.71 0.73 0.66 0.31 1.78 1.76 2.07 0.13 0.01 0.38 CE (CMODEL1) Coefcient 86.187 9.843 32.895 1.592 20.195 11.975 181.184 9.832 0.632 0.008 5.501 4.556 0.047 0.181 18.962 994.766 0.244 (t-ratio) 2.08 1.87 0.48 3.87 0.42 1.25 1.07 3.31 0.72 0.46 1.53 5.12 0.12 0.71 CE (CMODEL2) Coefcient 121.775 5.677 10.133 1.085 53.766 11.065 54.516 7.726 2.437 0.042 13.056 1.017 0.424 0.163 24.598 1056.087 0.099 (t-ratio) 2.27 0.83 0.11 2.03 0.87 0.89 0.25 2.00 2.15 1.80 2.81 0.88 0.82 0.50

According to these results, CE could not be improved by shifting input allocation towards more auxiliary manpower. A higher proportion of dentists seemed to contribute to cost inefciency, though not signicantly ( po0:10 in CMODEL1). Somewhat unexpectedly, TE was found to be sensitive to input allocations. TE was positively correlated with the use of a high proportion of dentist input (as opposed to the cost efciency models), and a low proportion of material usage (MATUSE). The population size of the municipality had no inuence in the TE models. TE was not correlated with the size of the municipality, which is clear in Fig. 2. This means that the catchment areas for the health centres were generally large enough to achieve scale efciency (Fig. 3). However, it did matter whether the health centre was under a single municipality or a joint municipal board. Health centres belonging to joint municipal boards were found to be systematically less efcient, though statistically signicantly only in PMODEL2 and CMODEL2. Using the econometric model (3), it was possible to estimate the relative importance of each factor to TE and CE. To accomplish this we explored the change in the value of the variable from its 25th to its 75th percentile. The effect of the average dental health of the municipal population (DMF) was most substantial: increasing the dental health contributed to a 12% decrease in CE:

1.00

Efficiency score by PMODEL1

0.90

0.80

0.70

0.60

0.50

0.40

0.30 0.30

0.40

0.50

0.60

0.70

0.80

0.90

1.00

Efficiency score by PMODEL2

Fig. 2. The correlation of efciency scores between visit output model (PMODEL1) and patient output model (PMODEL2).

According to our model, the effect of economic incentives and constraints was also signicant; unemployment (UNEMP) contributed to 9.8% (CMODEL1) and high expenditures per capita for primary care (PINVEST) contributed to 8.5% decrease in CE: Our ndings imply that a positive change in the MATUSE variable from its 1st quartile to its 3rd quartile would mean a 9.1% decrease in TE: A similar

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1.2

351

1.0

0.8

0.6

0.4

0.2

0 0 10000 20000 30000 40000 50000 60000 70000 80000 90000 100000

The size of municipal population

Fig. 3. The association between TE and municipal population in PMODEL1.

change in the percentage of dentist FTEs to total FTEs would increase TE by 3.3%.

Discussion In this study, we used nonparametric DEA methods and econometric models to analyse technical and cost efciency in the provision of oral health care in Finland. The ndings indicate that the choice of output selection substantially affected the individual efciency scores but not the average level of efciency. The DEA models allowed us to study two alternative approaches for output measurement and to determine that the results largely depend on whether dental visits or patient episodes are used as the output measure. The average level of cost inefciency was estimated to lie between 20% and 30%, which suggests that improving the overall efciency of dental health centres could theoretically reduce costs by FIM 0.30.4 billion ($ 90100 million). Scale inefciency was found to be a minor factor in overall inefciency. In the second stage of our analysis, we applied econometric techniques to explain the variation in efciency. These econometric models revealed several factors contributing to technical and cost efciency. According to our ndings, the most signicant factor explaining efciency was the average dental health of the municipal population (DMF). Good dental health of patients as measured by DMF-indices was associated to inefciency in models using visits as output. In recent years, the dental health of the population has increased markedly in most municipalities in Finland. Thus, the observed association could indicate that municipalities have failed to reallocate their resources due to the rapid improvement in dental health, especially among the younger age groups.

However, this association may also indicate that dentists tended to overestimate the treatment need (number of visits) when the patients dental condition was poor. It is possible that there are differences in the case-mix and severity of visits, which may have biased the estimates for CE: High UNEMP and high per capita expenditure on primary care in the municipality were associated with cost inefciency. A possible explanation is that cost minimisation is not the sole objective of health centres, which also serve as important employers within municipalities. The supply of services is not merely a health policy issue, because employees generate income tax revenues for the municipalities hosting the health centres. These tend to become overstaffed in the pursuit of meeting an employment or tax revenue objective, which thus compromises CE: The results also suggest that the greater expenditure on dental health in a municipality is not directly related to improved provision of services due to organisational slack. Increasing resources for primary care may generate substantial losses in terms of productive inefciency. Luoma et al. (1996) found in their 1991 study of Finnish health centres that variables reecting economic incentives and constraints for the municipalities were the most signicant determinants of CE: As with health centres, dental health centres are mainly tax-nanced and their budgets tied to the number of staff and inputs. In the study by Luoma et al. (1996), high state subsidies and taxable income per capita correlated with inefciency in public health centres. They also found, as we did, that health centres run by a joint board of municipalities tended to be less efcient. In this study, state subsidies and income per capita were not signicant determinants of inefciency. However, in 1991 the health centres faced a clearly different nancial situation compared to 1995, the year providing the data for this study. In 1991, part of the costs of health centres were covered by open matching grants, giving weak incentives for municipal decision makers to control costs. The state subsidy reform of 1993 gave municipalities more control in the nancing and provision of health services. In the reformed system, the state subsidies for running costs in social and health services were calculated prospectively by using a specic capitation formula. Since 1993, state subsidies were paid directly to the municipalities and they automatically received the subsidies without having to apply for them. In addition, year 1991 was the rst year of the recent economic recession in Finland, which reduced tax revenues and increased unemployment benets . kkinen & Luoma, 1995). Since the reform of 1993, (Ha the amount of state subsidies has decreased, meaning that municipalities have more economic responsibility for providing health services. From 1991 to 1995, health

Technical efficiency in PMODEL1

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care expenditure in primary care declined by approximately 10%. Contrary to the earlier ndings in the literature, allocative decisions did not markedly contribute to CE: A weak association between CE and the proportion of dentists was found, but it can be argued that CE would not generally be improved by shifting input allocation towards more auxiliary manpower in health centres, unless production technology were to undergo major changes. TE was correlated with the same exogenous factors as overall CE: UNEMP and per capita expenditure on primary care. Technical inefciency was also found to be associated with such allocative choices as over-utilising materials and under-utilising dentists work input. A high share of material costs was probably correlated with inefciency because patients whose dental condition is worse require more extensive use of costly materials. Thus, the observed association perhaps reects only the differences in patient case-mix. The substantial differences in productivity between health centres revealed by these analyses warrant further investigation. There is also a demonstrated need for standardised denitions and grouping for output data in order to improve the reliability of efciency comparisons. Signicant variation in practice patterns (number of visits per patient) were found which partly explains the observed differences in individual efciency scores by visit and episode-based models. The interesting policy question is how the observed inefciency potential could be transformed into welfare benets. According to our ndings, there is substantial variation in efciency which cannot be explained by exogenous economic factors or allocative decisions in the use of inputs. Thus, it seems that there exists capacity which could be used for extending the dental services to older age groups in many municipalities. However, the theoretical savings potential found in this study (FIM 0.30.4 billion) is clearly too small to guarantee full coverage for all age groups. Moreover, extending public dental services to older age groups decreases the demand for private services and alters the current equilibrium between public and private provision. The welfare maximising balance between public and private provision cannot be calculated without information on the productivity and efciency of the private sector, which leaves the decision about whether to cut resources or extend services in the public sector as a strictly subjective political issue. The main objective of public dental health centres is to provide good dental health for the population. Most previous studies have focused on the measurable, shortterm aspects of care rather than actual improvements in dental health. In a panel data setting, it would be possible to utilise DMF-indices as outcome measures. The cross-sectional data of this study allowed us to use DMF-indices only to control the differences in patients

dental health. It would be better if the output measures in future studies were somehow linked to the observed changes in caries incidence and DMF-indices.

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