Despite its contribution to the Korean medical service industry the question of how efficiently the Korean public hospitals have operated has been unresolved. This study gauges and analyzes the overall efficiency and the Malmquist productivity index in the industry over the period 1992 through 2001. In addition to cost efficiency. we also measure technical, allocative, pure technical and scale efficiencies. Furthermore. the Malmquist index is decomposed into efficiency and frontier changes. We identify several important factors which seem to have strong relationship with various inefficiency estimates. The results indicate that on average the public hospitals has wasted a significant amount of resources and costs over the period. Unlike many other industries, the low level of cost efficiency of the public hospital industry is mainly due to allocative inefficiency rather than technical inefficiency. The Maimquist productivity indices seem both due to the frontier change and efficiency change, but with more effect by the former. The results also indicate that the turnover of hospital beds has played an important role in determining efficiency and productivity of this important industry.