defined by the hospitals that can use minimum inputs to produce a given output.
This is illustrated by Hospitals A and B in this example. These two hospitals are considered efficient or exhibit best practice.
On the other hand, Hospital C, which does not lie on the frontier, is the hospital that uses more inputs to produce the same amount of output compared with Hospitals A and B. Hospital C is thus relatively inefficient. The efficiency measure of each hospital is the relative distance of the hospital to the frontier.
In this example, the efficiency of Hospital C is OCV/OC. The ratio OCV/OC represents the potential proportionate reduction in the inputs of Hospital C to produce the given output to make the hospital efficient.
Therefore, Hospital C is considered efficient if the ratio OCV/OC equals to 1 and inefficient if
the ratio is greater than 0 but less than 1.