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

  • 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)

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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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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  1. Chalkley, Martin & Malcomson, James M., 1998. "Contracting for health services when patient demand does not reflect quality," Journal of Health Economics, Elsevier, vol. 17(1), pages 1-19, January.
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  4. repec:cup:cbooks:9780521851442 is not listed on IDEAS
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  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, vol. 12(6), pages 541-551, December.
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  10. 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.
  11. Adriana Castelli & Mauro Laudicella & Andrew Street, 2008. "Measuring NHS Output Growth," Working Papers 043cherp, Centre for Health Economics, University of York.
  12. Nigel Rice & Andrew Jones, 1997. "Multilevel models and health economics," Health Economics, John Wiley & Sons, Ltd., vol. 6(6), pages 561-575.
  13. 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.
  14. 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.
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  16. 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.
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