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Truly inefficient or providing better quality of care? Analysing the relationship between riskadjusted hospital costs and patients’ health outcomes

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Author Info

  • Nils Gutacker

    (Centre for Health Economics, University of York, UK)

  • Chris Bojke

    (Centre for Health Economics, University of York, UK)

  • Silvio Daidone

    (Centre for Health Economics, University of York, UK)

  • Nancy Devlin

    (Office for Health Economics, London, UK)

  • David Parkin

    (NHS South East Cost, Horley, UK)

  • Andrew Street

    (Centre for Health Economics, University of York, UK)

Abstract

Accounting for variation in the quality of care is a major challenge for the assessment of hospital cost performance. Because data on patients’ health improvement are generally not available, existing studies have resorted to inherently incomplete outcome measures such as mortality or re-admission rates. This opens up the possibility that providers of high quality care are falsely deemed inefficient and vice versa. This study makes use of a novel dataset of routinely collected patient-reported outcomes measures (PROMs) to i) assess the degree to which cost variation is associated with variation in patients’ health gain and ii) explore how far judgement about hospital cost performance changes when health outcomes are accounted for. We use multilevel modelling to address the clustering of patients in providers and isolate unexplained cost variation. Our results provide some evidence of a U-shaped relationship between risk-adjusted costs and outcomes for hip replacement surgery. For the other three investigated procedures, the estimated relationship is sensitive to the choice of PROM instrument. We do not observe substantial changes in estimates of cost performance when outcomes are explicitly accounted for.

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File URL: http://www.york.ac.uk/media/che/documents/papers/researchpapers/CHERP68_Relationship_between_risk-adjusted_hospital_costs_and_health_outcomes.pdf
File Function: First version, 2011
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Bibliographic Info

Paper provided by Centre for Health Economics, University of York in its series Working Papers with number 068cherp.

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Length: 23 pages
Date of creation: Oct 2011
Date of revision:
Handle: RePEc:chy:respap:68cherp

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Keywords: hospital costs; efficiency; patient outcomes; PROMs; cost-quality relationship;

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References

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  1. Kim Rose Olsen & Andrew Street, 2008. "The analysis of efficiency among a small number of organisations: How inferences can be improved by exploiting patient-level data," Health Economics, John Wiley & Sons, Ltd., vol. 17(6), pages 671-681.
  2. Dormont, Brigitte & Milcent, Carine, 2004. "The sources of hospital cost variability," Economics Papers from University Paris Dauphine 123456789/5426, Paris Dauphine University.
  3. Silvio Daidone & Andrew Street, 2011. "Estimating the costs of specialised care," Working Papers 061cherp, Centre for Health Economics, University of York.
  4. Laudicella, Mauro & Olsen, Kim Rose & Street, Andrew, 2010. "Examining cost variation across hospital departments-a two-stage multi-level approach using patient-level data," Social Science & Medicine, Elsevier, vol. 71(10), pages 1872-1881, November.
  5. W. David Bradford & Andrew N. Kleit & Marie A. Krousel-Wood & Richard N. Re, 2001. "Stochastic Frontier Estimation Of Cost Models Within The Hospital," The Review of Economics and Statistics, MIT Press, vol. 83(2), pages 302-309, May.
  6. Silvio Daidone & Francesco D’Amico, 2009. "Technical efficiency, specialization and ownership form: evidences from a pooling of Italian hospitals," Journal of Productivity Analysis, Springer, vol. 32(3), pages 203-216, December.
  7. Anne, Hvenegaard & Nielsen Arendt, Jacob & Gyrd-Hansen, Dorte & Street, Andrew, 2010. "Exploring the relationship between costs and quality - Does the joint evaluation of costs and quality alter the ranking of Danish hospital departments?," COHERE Working Paper 2009:6, COHERE - Centre of Health Economics Research, University of Southern Denmark.
  8. Adriana Castelli & Mauro Laudicella & Andrew Street, 2008. "Measuring NHS Output Growth," Working Papers 043cherp, Centre for Health Economics, University of York.
  9. Jacobs,Rowena & Smith,Peter C. & Street,Andrew, 2006. "Measuring Efficiency in Health Care," Cambridge Books, Cambridge University Press, number 9780521851442, April.
  10. Chalkley, M. & Malcomson, J.M., 1995. "Contracting for health services when patient demand does not reflect quality," Discussion Paper Series In Economics And Econometrics 9514, Economics Division, School of Social Sciences, University of Southampton.
  11. Bruce Hollingsworth, 2008. "The measurement of efficiency and productivity of health care delivery," Health Economics, John Wiley & Sons, Ltd., vol. 17(10), pages 1107-1128.
  12. Skinner, Jonathan, 1994. "What do stochastic frontier cost functions tell us about inefficiency?," Journal of Health Economics, Elsevier, vol. 13(3), pages 323-328, October.
  13. Anders Skrondal & Sophia Rabe-Hesketh, 2009. "Prediction in multilevel generalized linear models," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 172(3), pages 659-687.
  14. Nigel Rice & Andrew Jones, 1997. "Multilevel models and health economics," Health Economics, John Wiley & Sons, Ltd., vol. 6(6), pages 561-575.
  15. Keeler, Emmett B., 1990. "What proportion of hospital cost differences is justifiable?," Journal of Health Economics, Elsevier, vol. 9(3), pages 359-365, November.
  16. Newhouse, Joseph P., 1994. "Frontier estimation: How useful a tool for health economics?," Journal of Health Economics, Elsevier, vol. 13(3), pages 317-322, October.
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Cited by:
  1. John Buckell & Andrew Smith & Roberta Longo & David Holland, 2013. "Health inefficiency and unobservable heterogeneity - empirical evidence from pathology services in the UK National Health Service," Working Papers 1307, Academic Unit of Health Economics, Leeds Institute of Health Sciences, University of Leeds.
  2. Laura Di Giorgio & Massimo Filippini & Giuliano Masiero, 2014. "The relationship between costs and quality in nonprofit nursing homes," IdEP Economic Papers 1402, USI Università della Svizzera italiana.

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