Allocative inefficiency and its effects on general hospitals expenditure functions in Uganda

Abstract

The increasing costs of healthcare arising largely from growing population and emergence of non-communicable diseases has exerted pressure on healthcare budgets in Uganda. With a finding gap of 7 percent to realize WHO recommended target of 15 percent or GDP. there is need for hospitals to be efficient in allocation of financial resources in order to provide the required level of healthcare services. Most studies on Uganda have focused on technical inefficiency of general hospitals, and evidence on their allocative inefficiency is limited. Understanding the sources of inefficiency in allocation of resources in general hospitals in Uganda is important to improve their performance. The purpose of this study is three fold: to determine the allocative inefficiency of general hospitals in Uganda, find the cost of allocative inefficiencies and its effect on the recurrent expenditure of general hospitals. Panel data from 22 general hospitals for the period 1997-2007 were used. Allocative inefficiency was estimated using Stochastic Frontier Analysis and the cost inefficiency by comparing actual and budgeted mean expenditure. The effect of allocative inefficiency on recurrent expenditures was examined using a Generalized Estimation Equation. The findings show that: overall general hospitals on average were 26 percent allocatively efficient. The allocative inefficiencies arose from payments of employee benefits (34.8 percent ). payments for utilities like electricity and water ( 14.1 %) and purchase of drugs (29.2%).Kenya. 29 percent of inefficiency is due labor. 52 percent drugs and 77 percent utilities (World Bank 20 14).The cost of Allocative inefficiency of general hospitals was 20 percent. Implying that the general hospitals caused a financial burden of 20 percent to health sector in Uganda. Furthermore, allocative inefficiency significantly affects the recurrent expenditure of general hospitals whereby a one percentage point increase in allocative inefficiency raises recurrent expenditure by 5.1 percent. To address the existing allocative inefficiencies general hospital in Uganda can improve the process of hire of labor and management of staff payroll: monitor procurement of drugs and reduce wastages in the use of utilities.