Hospital efficiency and debt.

U.S. Hospitals rely heavily on debt financing to fund major capital investments. Hospital efficiency is at least partly determined by the amount and quality of plant and equipment it uses. As such, a hospital's access to debt and credit rating may be related to its efficiency. This study explores this relationship using a broad sample of hospitals and associated bond issuance histories. Employing stochastic frontier analysis (SFA), we measure cost inefficiency to gauge the impact of debt issuance and debt rating. We find that hospitals with recent bond issues were less inefficient. Although we do not find a perfectly linear relationship between debt rating and inefficiency, we have evidence that hints at such a relation. Finally, we find an increase in inefficiency in the years following bond issues, consistent with the possibility of a debt death spiral.