A Cost-Effectiveness Framework for Profiling the Value of Hospital Care

Provider profiling and performance-based incentive programs have expanded in recent years but need a theoretical framework for measuring and comparing the ``value'' of clinical care across medical providers. Cost-effectiveness analysis provides such a framework but has rarely been used outside of the treatment choice context. The authors present a profiling framework based on cost-effectiveness methods and illustrate their approach using data on in-hospital survival and the cost of care for a heart attack from a sample of Massachusetts hospitals during fiscal year 2003. They model each outcome using hierarchical models that allow performance to vary across hospitals as a function of a latent quality effect and an effect of case mix. They also estimate incremental outcomes by conditioning on each hospital's pair of random effects, using indirect standardization to estimate ``expected'' outcomes, and then taking their difference. Incremental cost and effectiveness outcomes are combined using incremental net monetary benefits. Using cost-effectiveness methods to profile hospital ``value'' permits the comparison of the benefit of a service relative to the cost using existing societal weights.