Objective: To examine market competition and facility characteristics that can be related to technical efficiency in the production of multiple dialysis outputs from the perspective of the industrial organization model.

Study setting: Freestanding dialysis facilities that operated in 1997 submitted cost report fonns to the Health Care Financing Administration (HCFA), and offered all three outputs--outpatient dialysis, dialysis training, and home program dialysis.

Data sources: The Independent Renal Facility Cost Report Data file (IRFCRD) from HCFA was utilized to obtain information on output and input variables and market and facility features for 791 multiple-output facilities. Information regarding population characteristics was obtained from the Area Resources File.

Study design: Cross-sectional data for the year 1997 were utilized to obtain facility-specific technical efficiency scores estimated through Data Envelopment Analysis (DEA). A binary variable of efficiency status was then regressed against its market and facility characteristics and control factors in a multivariate logistic regression analysis.

Principal findings: The majority of the facilities in the sample are functioning technically inefficiently. Neither the intensity of market competition nor a policy of dialyzer reuse has a significant effect on the facilities' efficiency. Technical efficiency is significantly associated, however, with type of ownership, with the interaction between the market concentration of for-profits and ownership type, and with affiliations with chains of different sizes. Nonprofit and government-owned Facilities are more likely than their for-profit counterparts to become inefficient producers of renal dialysis outputs. On the other hand, that relationship between ownership form and efficiency is reversed as the market concentration of for-profits in a given market increases. Facilities that are members of large chains are more likely to be technically inefficient.

Conclusions: Facilities do not appear to benefit from joint production of a variety of dialysis outputs, which may explain the ongoing tendency toward single-output production. Ownership form does make a positive difference in production efficiency, but only in local markets where competition exists between nonprofit and for-profit facilities. The increasing inefficiency associated with membership in large chains suggests that the growing consolidation in the dialysis industry may not, in fact, be the strategy for attaining more technical efficiency in the production of multiple dialysis outputs.