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A Panel Data Analysis of Hospital Variations in Length of Stay for Hip Replacements: Private Versus Public

Inequality between private and public patients in Australia has been an ongoing concern due to its two tiered insurance system. This paper investigates the variations in hospital length of stay for hip replacements using Victorian Admitted Episodes Dataset from 2003/2004 to 2014/2015, employing a Bayesian hierarchical random coefficient model with trend allowing for structural break. We find systematic differences in the length of stay between public and private hospitals, after observable patient complexity is controlled. This suggests shorter stay in public hospitals due to pressure from Activity-based funding scheme, and longer stay in private system due to potential moral hazard. Our counterfactual analysis shows that public patients stay 1.4 days shorter than private in 2014, which leads to the 'quicker but sicker' concern that is commonly voiced by the public. We also identify widespread variations among individual hospitals. Sources for such variation warrant closer investigation by policy makers.