Abstract

The purpose of this study is to analyze the efficiency of the nursing home industry in Israel using Data Envelopment Analysis (DEA). DEA is a popular method for estimating efficiency and productivity especially when market conditions are not perfect. However, DEA usually disregards quality variations of output. We extend the DEA method such that quality of service is taken into consideration for estimating the efficiency indexes. We propose two methods for integrating quality variations into the DEA method: in the first we consider the quality vs. input per bed and in the second we consider average input per bed. These two methods were applied to the Israeli nursing home industry, and the estimated indexes were statistically analyzed. One of our main interests is to compare the efficiency between a for-profit firm (FPF) and a non-profit organization (NPO) in the nursing home industry. The empirical investigation provided us with complex conclusions regarding the efficiency comparisons. We found that the type of data used for the estimations (either cost or care staff) and the quality of service were the factors that most affected efficiency.