Estimation of Production Function of Direct Health Care Services Delivered by Iranian Social Security Organization

Document Type: Research Paper


1 Research Center for Economic Studies, Alzahra University, Tehran, Iran

2 Department of Economics, Alzahra University, Tehran, Iran


Background and Objectives: Social Security Organization (SSO) is the second largest organization to the Ministry of Health and Medical Education (MOHME) in providing health care services in Iran. In recent years the gap between the SSO’s resources and expenditures has shown an unprecedented growing trend due to the rapidly increasing demand. Continuation of this trend may lead to financial imbalance in the following years, which would negatively impact access of public to health care services. This study, thus, seeks to explore factors affecting the efficiency of SSO’s health care services in quest for solutions to alleviate the potentially critical situation ahead.
Methods: A microeconomic analysis was carried out by Panel SFA method. Cobb-Douglas production function was estimated based on Maximum Likelihood Estimation (MLE), using seven-year panel data derived from the yearbooks of SSO (2008-2015). The annual admission rate was selected as the output variable and it was assumed to be a function the number of physicians, nurses, active beds, paraclinical and other staff, and the bed restoration interval. Calculation was carried out using Frontier Version 4.1 Software.
Findings: Significant elasticity coefficient of 0.835, 0.073, 0.0273, -0.199 was obtained for active beds, physicians, nurses, and bed restoration interval respectively. The marginal production of inputs was calculated to be 79.14, 9.48, and 1.73 for active beds, physicians and nurses, respectively. The marginal rate of technical substitution (MRTS) was identified to be 0.18 for nurse-physician, 0.02 for nurse-bed, and 0.12 for physician-bed substitution. The η and  were calculated to be 0.015 and 0.581, respectively.
Conclusions: Our results clearly shows that the production (annual patient admission rate) in SSO’s hospital is capital intensive being highly dependent on number of active beds with increasing return to scale. The inefficiency has only marginally decreased over time, yet there is room to improve production by increasing efficiency. The MRTS for nurse-physician substitution suggests that the escalating burden of physicians’ wage may be reduced by employing nurses in the services they can deliver instead of physicians. The negative contribution of bed restoration interval to production highlights the challenging nature of quality improvement by increased ALS, which is currently low in SSO’s hospitals. The problem of inconsistency between quality services and high production, thus, persists pointing to the need for in-depth reform in the structure of health care delivery.