Towards an Agenda for Measuring Efficiency in Health Care Michael Chernew Sept. 27, 2007

Efficiency review Definition (Beth is correct) –Same output for less input –More output for same input Issues: –Unit of observation –Measuring outputs –Measuring inputs –Combining inputs and outputs

Unit of Observation

Unit of observation Service –Diagnostic test –Medical or surgical service or procedure –Admission Episode –Heart attack –6 months management of diabetes Population –Health plan members

Which is preferable? Depends on perspective –Measure service efficiency if: The services to be delivered are specified E.g. Which hospital should be chosen for CABG? –Measure episode efficiency if: Flexibility in the set of services delivered exists Decisions occur at episode level Can hold an entity accountable for the episode Can be used as indicators for entities with broader responsibility (health plan) E.G. Which providers group should manage CHD patients? E.g. Which health plan provides most efficuernt care for a set of sentinel conditions. –Measure population efficiency if: Comparing health plans (or other entity responsible for populations)

Measuring Outputs

Measuring outputs Health is the appropriate conceptual output Service level outputs can be counter productive –No quality adjustment –No appropriateness adjustment –Typically these are cost measures and should not be considered efficiency measures

Measuring outputs More of the output must be ‘good’ –Not true of: AdmissionsVisitsProceduresPrescriptions

Measuring outputs going forward Health is hard to measure: –Difficult to observe –Casemix adjustment is complex –Multi-dimensional This should be area of AHRQ focus

Measuring inputs

Econ 101 No uniquely efficient input mix –Depends on prices, output quantity We should not care about input mix –Cost is what matters –Non-Health example: Production in the US is more efficient than in China in terms of resource use, but Chinese products are cheaper. Who should we buy from?

Cost measures Should be comprehensive –Include patient/ provider costs Higher cost not always inappropriate (even if control for quality and casemix) –Scale/ Scope economies: Rural facilities may have higher costs but be just as ‘efficient’ as larger urban facilities

Moving forward Price/ cost data is hard to obtain –Proprietary –Heterogeneous –Better data could help researchers –May not be needed for other users They know the prices they are quoted Dynamic issues may be important –Cheaper now, more expensive later Identify longer run costs (and outcomes)

Combining Costs and Outputs

Creating efficiency measures Complex statistics –DEA Adjusts for scale economies, etc. Theoretically driven Methodology subject to many criticisms Simple approaches –Divide (output per input) –Hard with multiple outputs (could ‘score’)

Why combine? Report quality and cost, let users decide: –Consistent with most other markets –Allows users to integrate their own preferences –Can avoid issues of aggregating quality In some cases combining may important –P4P –Tiering –Best done by users CEA perspective: Incremental cost vs incremental output

Recommendations Continue quality measurement Promote transparent data Support development of efficiency enhancing tools and evaluation of efficiency related interventions –Includes quality and cost related interventions INVESTIGATOR INITIATED WORK