Truly inefficient or providing better quality of care? Analysing the relationship between risk adjusted hospital costs and patients’ health outcomes – Centre for Health Economics, University of York – 14 October 2011

Posted on October 18, 2011. Filed under: Clin Governance / Risk Mgmt / Quality, Health Economics | Tags: , |

Truly inefficient or providing better quality of care? Analysing the relationship between risk adjusted hospital costs and patients’ health outcomes – Centre for Health Economics, University of York – 14 October 2011
CHE Research Paper 68

Extract from the introduction

“Any health system that aims to make the best use of its scarce resources will be concerned about variations in costs between different providers of the same health care. If providers can reduce costs to the level of best practice, resources might be released to provide benefits elsewhere. But in analysing variations in provision, it is important to ensure that an assessment of best practice includes not just costs but also patient outcomes. High costs are not always simply due to inefficiency and may be associated with better outcomes. Low costs may sometimes be a symptom of low quality care leading to poor outcomes.

Comparative cost analysis in a multiple regression framework can help to address the question of ‘which variation in cost is justifiable’ (Keeler, 1990). By benchmarking providers against each other on the basis of their observed costs, a regulator can gain insights into the cost structure and identify the resource implications of heterogeneity (Shleifer, 1985). Over the past three decades, several hundred studies have conducted comparative analyses of hospital costs (Hollingsworth, 2008). While these have contributed to a better understanding of provider heterogeneity with respect to patient case-mix and production constraints, they have not convincingly addressed the issue of variations in quality and, particularly, health outcome as a potential explanation for observed costs (Newhouse, 1994, Jacobs et al., 2006). As a consequence, high quality hospitals may be incorrectly deemed inefficient and vice versa.

Since April 2009, all providers of publicly-funded care in the English National Health Service (NHS) are required to collect patient-reported outcome measures (PROMs) for four elective procedures: unilateral hip and knee replacements, varicose vein surgery, and groin hernia repairs (Department of Health, 2008a). Standardised questionnaires, including both generic (the EQ-5D) and conditionspecific instruments, are collected from all eligible inpatients before and 3 or 6 months after surgery.

Building on this initiative, this paper has two aims. First, we wish to explore to what extent variation in health outcomes are associated with observed cost variation in the provision of care that remains after controlling for case-mix and production constraints. Second, we investigate whether the new information on health outcomes changes our judgement of provider cost performance. We perform sensitivity analysis to assess the degree to which our findings depend on the choice of PROM instrument.”

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