Use Of The Stochastic Frontier Cost Model To Evaluate The Efficiency Of The New Rural Cooperative Medical System

Efficiency is an important standard to examine the reasonability of the medical care supply. It means that the specific health service units utilize the best combination of production factors and the best management style to produce the most health services meeting the consumers'needs under the condition of designated fund.The stochastic frontier cost model is quite a popular method of measuring the efficiency at the moment. It adopts a group of combined error model to measure the distance between the actual production cost and the frontier cost, namely, the inefficient loss. The frontier cost means the possible minimum cost at a certain level of output. The actual production cost is equal to the frontier cost in efficient organizations, while the actual cost of inefficient organizations is larger than the frontier cost and the excess part is interpreted as the inefficiency. The stochastic frontier cost model emphasizes that the inefficiency is absolute and the efficiency is relative. It acknowledges the existence of uncontrollable random effects. It conforms to the actual situation in ideological structure because it is not very sensitive to a few singular values when it is used to evaluate the efficiency. Therefore the stochastic frontier cost model is currently considered to be the best method of evaluating the efficiency in the Multiple Input and Multiple Output System. Many domestic scholars use the stochastic frontier cost model to evaluate the efficiency of hospitals, but it has not been reported about the evaluation of the new rural cooperative medical system.Research approach: The study chooses 47 sample areas in Liaoning Province as the objects of analysis. The health care survey data of LiaoningProvince in 2006 and the materials provided by the Rural Department of the Health Bureau of Liaoning Province were used, including the socio- economical situation of the sample area, the basic situation of the peasants participating in the rural cooperative medical system, the raising, distribution and expenditure of the rural cooperative medical funds, the inpatient and outpatient compensation, the evaluation index of economic and social benefits, etc. After checking the materials the author utilized SPSS11.5 and LIMDEP software to set up the database and carry on data processing and statistical analysis. The concrete steps are: 1. the variable selection of the stochastic frontier model 2. the establishing of the stochastic frontier model 3. the parameter estimation 4. the efficiency evaluation of the new rural cooperative medical system in Liaoning Province by the stochastic frontier cost model.Results: 1. In this model the three explanatory variables --- the total raised funds per capita in the current year, the average hospitalization expenditure per time and the percentage of people enjoying the compensation --- are statistically meaningful at the level of P<0.05. It proves that the three variables have a large contribution to the per capita expenditure of the funds. Their contributions arranged from big to small as follows: the percentage of people enjoying the compensation, the total raised funds per capita in the current year, the average hospitalization expenditure per time. 2. The 47 sample areas are all in the inefficient state. The inefficient index is 24.9% on average. The minimum is 7.6% and the maximum is 120%.Conclusions: 1.It is feasible to utilize the stochastic frontier cost model to evaluate the efficiency of the new rural cooperative medical system. But because the choosing of the dependant variable and the explanatory variable has important influences on the evaluation result, we propose that we should compare and analyze the representativeness of the index while choosing the variables, and choose and construct a model according to the acquirability of the index in the actual research and others'relevant research results. 2. The compensation situation, the raising funds situation and the hospitalization costs in the new rural cooperative medical system are the main factors influencing the cost. 3. On the whole, theefficiency of the new rural cooperative medical system works well in Liaoning Province. But the system is implemented for a short period of time and has no experience to follow. The implementation in each area is still in the process of research and exploration, and the inefficient state of the new rural cooperative medical service is inevitable in the sample areas. So we should pay attention to the influence of the compensation mode in the seriously inefficient areas and take the timely and effective measures to improve the efficiency level of the new rural cooperative medical system.