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On measuring the hospital cost/quality trade‐off

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  • Kathleen Carey
  • James F. Burgess

Abstract

This paper explores the relationship between cost and quality of hospital care. A total operating cost function is estimated for 137 US Department of Veterans Affairs hospitals for 1988–1993 using three rate‐based measures of quality as regressors. The high likelihood of the existence of measurement error in quality in the cross section leads to the application of novel instrumental variable techniques. Results suggest that mortality and readmission indices are adjusted inadequately for illness severity. The measure on the failure to follow up inpatient discharges with outpatient care, however, appears to increase cost. The results of this paper underscore a number of practical difficulties and challenges facing government or other systems in evaluating the relative performance of their hospitals. Copyright © 1999 John Wiley & Sons, Ltd.

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  • Kathleen Carey & James F. Burgess, 1999. "On measuring the hospital cost/quality trade‐off," Health Economics, John Wiley & Sons, Ltd., vol. 8(6), pages 509-520, September.
    • Handle: RePEc:wly:hlthec:v:8:y:1999:i:6:p:509-520
    DOI: 10.1002/(SICI)1099-1050(199909)8:6<509::AID-HEC460>3.0.CO;2-0
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    2. Lukas Kwietniewski & Mareike Heimeshoff & Jonas Schreyögg, 2017. "Estimation of a physician practice cost function," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 18(4), pages 481-494, May.
    3. Paolo Berta & Gianmaria Martini & Francesco Moscone & Giorgio Vittadini, 2016. "The association between asymmetric information, hospital competition and quality of healthcare: evidence from Italy," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 179(4), pages 907-926, October.
    4. Caruso, Enza & Rossi Zadra, Andrea, 2020. "The trade-off between costs and outcome after cardiac surgery. Evidence from an Italian administrative registry," Health Policy, Elsevier, vol. 124(12), pages 1345-1353.
    5. Khushalani, Jaya & Ozcan, Yasar A., 2017. "Are hospitals producing quality care efficiently? An analysis using Dynamic Network Data Envelopment Analysis (DEA)," Socio-Economic Planning Sciences, Elsevier, vol. 60(C), pages 15-23.
    6. Germán M. Izón & Chelsea A. Pardini, 2017. "Cost inefficiency under financial strain: a stochastic frontier analysis of hospitals in Washington State through the Great Recession," Health Care Management Science, Springer, vol. 20(2), pages 232-245, June.
    7. Martini, Gianmaria & Berta, Paolo & Mullahy, John & Vittadini, Giorgio, 2014. "The effectiveness–efficiency trade-off in health care: The case of hospitals in Lombardy, Italy," Regional Science and Urban Economics, Elsevier, vol. 49(C), pages 217-231.
    8. Anne Hvenegaard & Jacob Arendt & Andrew Street & Dorte Gyrd-Hansen, 2011. "Exploring the relationship between costs and quality: Does the joint evaluation of costs and quality alter the ranking of Danish hospital departments?," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 12(6), pages 541-551, December.
    9. Juha Laine & Miika Linna & Unto Häkkinen & Anja Noro, 2005. "Measuring the productive efficiency and clinical quality of institutional long‐term care for the elderly," Health Economics, John Wiley & Sons, Ltd., vol. 14(3), pages 245-256, March.
    10. Yuxi Wang & Simone Ghislandi & Aleksandra Torbica, 2020. "Investigating the geographic disparity in quality of care: the case of hospital readmission after acute myocardial infarction in Italy," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 21(8), pages 1149-1168, November.
    11. Ortega-Díaz, M. Isabel & Martín, Juan Carlos, 2022. "How to detect hospitals where quality would not be jeopardized by health cost savings? A methodological approach using DEA with SBM analysis," Health Policy, Elsevier, vol. 126(10), pages 1069-1074.
    12. Suthathip Yaisawarng & James F. Burgess, 2006. "Performance‐based budgeting in the public sector: an illustration from the VA health care system," Health Economics, John Wiley & Sons, Ltd., vol. 15(3), pages 295-310, March.
    13. Mehdi Farsi & Geert Ridder, 2006. "Estimating the out‐of‐hospital mortality rate using patient discharge data," Health Economics, John Wiley & Sons, Ltd., vol. 15(9), pages 983-995, September.
    14. Niccie L. McKay & Mary E. Deily, 2008. "Cost inefficiency and hospital health outcomes," Health Economics, John Wiley & Sons, Ltd., vol. 17(7), pages 833-848, July.
    15. Charles Hegji, 2006. "Correlates of hospital quality: a preliminary study," Economics Bulletin, AccessEcon, vol. 9(4), pages 1-13.
    16. Lindlbauer, Ivonne & Schreyögg, Jonas & Winter, Vera, 2016. "Changes in technical efficiency after quality management certification: A DEA approach using difference-in-difference estimation with genetic matching in the hospital industry," European Journal of Operational Research, Elsevier, vol. 250(3), pages 1026-1036.
    17. Mary E. Deily & Niccie L. McKay, 2006. "Cost inefficiency and mortality rates in Florida hospitals," Health Economics, John Wiley & Sons, Ltd., vol. 15(4), pages 419-431, April.
    18. Cohen, Jeffrey P. & Osleeb, Jeffrey P. & Yang, Ke, 2014. "Semi-parametric regression models and economies of scale in the presence of an endogenous variable," Regional Science and Urban Economics, Elsevier, vol. 49(C), pages 252-261.

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