Federal state differentials in the efficiency of health production in Germany: an artifact of spatial dependence?

Due to regional competition and patientmigration, the efficiency of healthcare provision at theregional level is subject to spatial dependence. We addressthis issue by applying a spatial autoregressive model tolongitudinal data from Germany at the district (‘Kreis’)level. The empirical model is specified to explain efficiencyscores, which we derive through non-parametricorder-m efficiency analysis of regional health production.The focus is on the role of health policy of federal states(‘Bundesla¨nder’) for district efficiency. Regression resultsreveal significant spatial spillover effects. Notably,accounting for spatial dependence does not decrease butincreases the estimated effect of federal states on districtefficiency. It appears that genuinely more efficient statesare less affected by positive efficiency spillovers, so thattaking into account spatial dependence clarifies theimportance of health policy at the state level.