A new technique for identifying inefficient hospitals, Data Envelopment Analysis (DEA), is field tested by application to a group of teaching hospitals. DEA is found to provide meaningful insights into the location and nature of hospital inefficiencies as judged by the opinion of a panel of hospital experts. DEA provides insights about hospital efficiency not available from the widely used efficiency evaluation techniques of ratio analysis and econometric-regression analysis. DEA is, therefore, suggested as a means to help identify and measure hospital inefficiency as a basis for directing management efforts toward increasing efficiency and reducing health care costs.