Efficiency

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Measuring Hospital Efficiency

May 20, 2012 in Hospitals, Medicare, P4P, Quality | No comments

Medicare recently released the Medicare Spending per Beneficiary (MSPB) measure on Hospital Compare. This measure includes all payments to doctors, hospitals or other facilities for services provided to a patient during the three days before the hospital stay, during the stay, and during the 30 days after discharge from the hospital. Kaiser Health news provides an analysis of this measure and also provides an interactive graph of state level efficiency and a list of hospital MSPB scores.

The Kaiser Health News article notes that:

“Patients treated at most or all hospitals in Las Vegas, Fort Lauderdale, Newark, Miami, Los Angeles and Orange County, Calif., tended to cost more than the national median, which is $17,988. Patients treated at most or all hospitals in Anchorage, Des Moines, Honolulu, Minneapolis and Portland, Ore., tended to cost Medicare less.”

The article also recaps the opinions of a number of industry and policy thought leaders.

Jennifer Faerberg, director of health care affairs at the Association of American Medical Colleges stated that differences in the MSPB measure across hospitals is primary due to how well hospitals  can control post-acute costs.  This is generally true. The MSPB measure controls for the type of admission (i.e., MS-DRG) of the index admission.  Thus, differences in the MSPB measure are due principally to differences in post-acute spending and the frequency with which the patient is readmitted to the hospital within the 30 days after the initial hospitalization.

Some policy experts were critical of the MSPB measure:

Nancy Foster, a vice president at the American Hospital Association, said the data do not answer key questions: Did the patients that got more services fare better than others? Could the patients that cost Medicare less actually have benefitted from more care? ”What we don’t know is if those additional investments yield differences in outcomes,” Foster said.

Foster makes a good point; the MSPB measure should not be analyzed in isolation.  CMS does not only measures hospital efficiency, but also includes a number of hospital quality measures.

Elliott Fisher, one of the main researchers from the Dartmouth Atlas, questioned the practical usefulness of the new information.  “As a hospital administrator I would go, how does this help me?” he said. “We just don’t know whether a lot of specialists are running through the hospital doing everything they can to every patient who is horizontal, or whether they’re discharging every patient to a rehab facility. Those are two very different causes of high costs.”

However, CMS did distribute a “hospital specific report” that detailed where the average spending went (e.g., inpatient, skilled nursing facility, home health physician) in the periods before, during and after the index hospital admission.  Each of these quantities is compared to the state and national average spending levels for each type of service.

Disclaimer: The Healthcare Economist worked with CMS and a team at Acumen to develop the MSPB measure.

 

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Healthcare Cost and Utilization Project Databases

August 15, 2011 in Data | 1 comment

The Agency for Healthcare Research and Quality’s (AHRQ)  Healthcare Cost and Utilization Project (HCUP) is a family of databases and tools intended to improve the quality, safety, efficiency, and effectiveness of the U.S.   health care system.  HCUP results from Federal-State-Industry partnership to build a comprehensive all payer data system.  A summary of the databases available from HCUP can be found here.  A summary is also provided in the table below.

Abbreviation

 File Description States Participating

Available From:
SID State Inpatient Databases Data on 95 percent of community hospital discharges 44 1990
SASD State Ambulatory Surgery Databases Ambulatory surgical center data (hospital and free-standing) 29 1997
SEDD State Emergency Department Databases ED visits that do not result in hospitalization 29 1999
NIS Nationwide Inpatient Sample All-payer inpatient care database. A 20% stratified sample of U.S. community hospitals. varies by year 1988
NEDS National Emergency Department Sample All-payer inpatient ED database. A 20% stratified sample of U.S. community hospitals. 2006
KID Kids’ Inpatient Database All-payer inpatient database for children.  Contains 3 million discharges form 3,500 community hospitals. 1997

 

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Why does cost effective care spread so slowly

May 27, 2011 in CER | No comments

According to Fuchs and Millstein, here’s why:

  • Insurers hesitation to standardize coverage.  Standardization of coverage would force insurance companies to compete primarily on the basis of price, which would put pressure on their profits.
  • Employers bear too much of the marginal cost from employees choosing expensive health plans.  Because companies wish to avoid alienating employees, only 20% of large employers require workers who choose more expensive plans to pay the marginal difference in cost.
  • The public does not understand why cost effectiveness is good for them.  The general public does not typically realize that higher health insurance cost are not paid by employers, but by the employees themselves through lower wages in the long run.
  • Legislators need money.  Legislators seek campaign contributions from health industry stakeholders who benefit from the current inefficient arrangements.
  • Hospitals fear cost-effectiveness means lower reimbursements.  Hospital administrators often resist efforts to reduce hospital occupancy for fear that decreases in revenue will jeopardize their ability to cover large fixed costs.
  • Physicians fear pay cuts and loss of professional autonomy.
  • Drug and device manufacturers will lose profits.  Although manufacturer with unique products can sell their goods for a high price, there are alternatives to most medical products.  In these cases, firms attempt to create the perception that their products are unique to justify high prices.  Marketing and lobbying are vital parts of these efforts.

Source: Victor R. Fuchs, Ph.D., and Arnold Milstein, M.D., M.P.H “The $640 Billion Question — Why Does Cost-Effective Care Diffuse So Slowly?” NEJM, May 18, 2011.

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Efficiency vs. Equity

January 24, 2010 in Economics - General | No comments

Most economists focus on the concept of “economic efficiency.” The basic concept of economic efficiency is to maximize the overall resources available to society.  However, often times economists ignore the importance of equity (i.e., the distribution of resources within a society).

Tyler Cowen reminds us that seeking economic efficiency blindly is not ideal, especially in the case of natural disasters as the one that hit Haiti.  Below is an excerpt:

I still believe that foreign aid does not raise economic growth rates, on average.  But aid can alleviate human misery, such as when a visiting doctor gives vaccines or hands out medicine.  (In fact per capita income may fall, as a result, if some “weaklings” are kept alive.)…

Imagine U.S. troops liberating Buchenwald.  Would any commentators say the following?  ”Don’t give him that blanket, sell it to him!”  “Hey buddy, get a job!”  ”Moral hazard: they’ll just go get captured again.”  etc.  I don’t think so.

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Episode-Based Performance Measures: A reality?

December 15, 2009 in P4P | 2 comments

Pay-for-performance has become very fashionable of late. One way to measure physician performance is with episode groupers. This software groups together some or all of the services related to the care of a patient’s chronic or acute medical conditions. Policymakers can then use the episode as the unit of observation for: feedback on physician performance, public reporting, pay-for-performance, or ‘bundled payments for groups of services. These pay-for-performance measures could offer a significant increase in the scope of quality measures, which currently only evaluate process (e.g., did a heart attack patient receive a beta-blocker).

A paper by Hussey et al. (Health Affairs 2009) looks at the current state of the episode groupers. They note that these groupers are currently being tested in the following settings: (1) Geisinger Health System’s payment for cardiac care episodes; (2) the Medicare Acute Care Episodes (ACE) demonstration,(3) the Medicare Physician Hospital Collaboration demonstration; and (4) PROMETHEUS Payment’s pilot-testing of episode-based payments for several acute and chronic conditions.

One problem with assigning an episode to any individual physician is that Medicare patients are typically treated for many physicians, even within an episode. “Medicare beneficiaries receive care from a median of seven physicians, and the typical primary care physician must coordinate with 229 other physicians working in 117 practices.”

Secondly, it is unclear whether the physician should be the unit of analysis. Poor hospital hygine may be the cause of certain hospital-born infections. Any single physician likely has little input in the overall sanitation level of the hospital. Thus, it is unclear if one should assign an episode to a physician, a physician group, a facility (e.g., hospital) or a larger health care institution.

Finally, many Medicare beneficiaries have co-occurring health events. For instance, beneficiaries had an average of “…eight or more episodes of care during a year, some of which were for interrelated conditions. For example, many beneficiaries who had an AMI also had hypertension (63 percent), CHF (54 percent), or diabetes (35 percent) episodes.”

While episode-based performance measures offer much promise, there are many significant obstacles that need to be overcome before these measures will be able to significantly improve the efficiency of how medical care is delivered today.

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Common Efficiency Measures

October 21, 2009 in Quality | 2 comments

Measuring efficiency is a difficult business. As AHRQ,  “In most cases, individuals and firms will define efficiency as a relationship between what it costs them and what service or outcome they receive, rather than as a trait inherent in the provider.”

Further, efficiency can be measured as either production efficiency or allocative efficiency.  “For example, a physician may produce CT scans efficiently in her office, but the physician may not appear efficient to a health plan if a less expensive diagnostic test could have been substituted in some cases.”

This table lists some of the more common efficiency measures.

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Measuring Hospital Efficiency

October 19, 2009 in Hospitals, Quality | No comments

Efficiency in the field of economics increases when either 1) outputs are increased for a given level of inputs, or 2) inputs are decreased for a given level of output. Estimating efficiency in the medical field is more difficult, however, since the output (marginal health improvement) is difficult to measure. In the area of hospitals, some researchers have estimated the cost per hospital stay, or cost per patient-day as an estimate of efficiency. Newhouse (1994) offers a striking analogy of why this would not be a good measure of efficiency.

“Consider the following analogy. Among the amenities of first-class air travel are wider seats, better food, and a higher ratio of flight attendants to passengers than in the coach section. These amenities are obviously valued because some passengers pay an incremental amount for them. An analog to patient-days or stays in air travel is passenger-miles or the number of passengers; without additional adjustment, however, such output measures would make the additional costs associated with the first class section appear as inefficiency, not as something consumers valued.”

There are other difficulties in measuring hospital efficiency. For instance,

  1. Many hospital inputs are typically omitted. For instance, capital inputs and the labor costs from physicians with admitting privileges are frequently omitted.
  2. Case mix controls are not perfect and often hide significant variation in patient illness severity within each diagnostic cost group (DRG).
  3. When using frontier analysis to measure efficiency, strong assumptions are needed. Data Envelopment Analysis (DEA) assumes no measurement error. ["Random measurement error that is inframarginal (off the frontier) will not affect the location of the frontier, though it will affect how inefficient any given firm appears to be, but sufficiently large error in a given direction will move the frontier itself, thereby increasing the measured inefficiency among firms lying near that segment of the frontier."]  Stochastic frontier estimation allows for measurement error, but makes specific assumptions on the error distribution.
  4. There are many outputs to estimate.  Estimating aggregate efficiency for each hospital does not provide sufficient detail.  However, creating an efficiency measure for each disease type or patient types creates a more difficult estimation problem.  Further, there is no obviously superior manner in which to aggreate these disease specific scores into a single, hospital-wide efficiency score.

Newhouse J (1994) “Frontier Estimation: How useful a tool for health economics?” Journal of Health Economics, v13(3): 317-322.

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Health Care Efficiency: Academic vs. Vendor Measures

July 7, 2009 in Hospitals, Quality, Supply of Medical Services | 1 comment

Measuring efficiency in health care is extremely difficult.  If there was an accurate scientific measure of patient health (e.g., a 1-100 scale) before and after treatment.  That way, one could measure changes in health before and after treatment per every dollar spent.  However, measuring health outcomes is very difficult. 

In the academic literature, hospital efficiency most commonly measured as: “risk-adjusted average length of stay (Weingarten et al. 2002); cost per risk-adjusted discharge (Conrad et al. 1996); and the cost of producing both risk-adjusted hospital discharges and hospital outpatient visits (Rosko 2004).”  Measures of physician efficiency often use RVU measures.

On the other hand, private vendors often uses “groupers.”  Groupers are algorithms that group different treatments into a single episode of care for a specific illness.  For acute illnesses, hospital and physicians treatments are grouped together into one episode of care.  For chronic illnesses, vendors look at costs over a specific period of time.  ”The market leaders among episode-based measures are Episode Treatment Groups (ETGs) and Medical Episode Groups (MEGs), which use algorithms primarily based on diagnosis codes and dates of services to group-related insurance claims into episodes.”

If the grouper algorithms are correct (a big if), I believe private vendor methodology provides a better measure of efficiency since they examine the entire episode of care.  Although they may be a superior measure of efficiency, they may not help improve efficiency.  If I see certain episodes of care are efficiency or not in certain areas, it may be difficult to pinpoint which providers are being inefficient if the patient visits multiple physicians or hospitals.  On the other hand, the academic literature is more likely to use the hospital or physician as the unit of measurement.  This allows each physician or hospital to improve on their efficiency measures, but may not reflect the true quality of care if patients see many physicians or are hospitalized at a number of hospitals.  For instance, a hospital may have a high efficiency score (low cost per procedure), but if they do a bad job and the patient is re-hospitalized at a different hospital, this will not show up in the academic efficiency measures, but will be captured by the vendor measures.   

  • Hussey et al. (2009) “A Systematic Review of Health Care Efficiency Measures,” Health Services Research, v44(3):784-805.

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Is American Health Care Inefficient?

September 24, 2008 in HC Statistics, International Health Care Systems | 2 comments

Economists generally define efficiency in two manners: productive efficiency and allocative efficiency.  Productive efficiency means producing a good or service using fewest inputs.  A car company who produces a car that costs $20,000 to manufacture is less efficient than a company that can produce that same car (at the same quality) at a cost of $15,000.  Allocative efficiency is more subtle.  Are we producing the right amount of cars compared to trucks?  As gas prices rose, allocative efficiency compelled many car makers to shift to smaller passanger cars and hybrids compared to trucks.

Alan Garber and Jonathan Skinner (2008) apply the dual concepts of productive and allocative efficiency.  They ask: is the American health care system efficient?  The authors find that the American health care system is inefficient in both a productive and allocative sense.  The health care provided in other countries, however, is also inefficient, often for different reasons.

Productive Efficiency

Not providing low cost, high quality care or prescribing unnecessary treatment both decrease efficiency.  “There are sins of omission–one recent U.S. study suggested just half of recommended care is provided in a typical primary car visit (McGlynn et al. 2003)– as well as sins of commission–the spinal fusion surgery that provides marginal relief and more complications compared to conservative management (Rivero-Arias et al. 2005).”

Table 1 from the Garber and Skinner paper compares some key healthcare statistics between the U.S., Canada, France, Germany, the Netherlands, U.K., and Japan.  Any evaluation of a health care system must take into account the health of individuals before they are treated by medical providers.  Americans have the highest levels of obesity and diabetes and lowest levels of smoking in the world.  Further, rates of motor vehicles accidents and homicide are high compared to those in the rest of the developing world.  After taking these baseline population characteristics into account, is the production of American medical care efficient?

Table 1 also show that the U.S. has low levels of EMR usage and high administrative cost.  Elderly influenza vaccination, however, is fairly high compared to other developed nations.

An interesting survey by the McKinsey Global Institute looks at the cost and outcomes for 3 procedures (gallstone disease, breast cancer and lung cancer) in Germany, the U.K. and the U.S.

“In each case the United Kingdom was more parsimonious in its use of resources for the management of each condition.  However, Germany, not the U.S., use the most resources in the three conditions in which it was included.

In the treatment of lung cancer, patients in the U.S. experienced better outcomes than those in Germany and far better than for patients in the United Kingdom.  For breast cancer, outcomes were slightly better in the U.S. while for gallstone removal, the United Kingdom had worse outcomes than the U.S. or Germany.  Germany in turn had slightly better outcomes than the U.S. but much greater resource use.”

Allocative Efficiency

Allocative Efficiency determines whether health care spending is at the correct level.  Should we increase health care spending or instead spend those resources on education, roads or R&D?

Table 1 shows some statistics to quantify the allocative efficiency of the U.S.  Physicians per capita in the U.S. is in line with that of other nations, but this does not reveal the U.S. preference towards utilizing more specialist physicians than generalists.  Hospital beds per person is fairly low in the U.S., but this statistic hides the fact that the U.S. uses more outpatient facilities and that hospital care in the U.S. is more resource intensive than is the case in other countries.  Surgery wait times in the U.S. are fairly low, but many 20% of Americans receive unnecessary medical care.  Further, the American reduction of preventable deaths was the lowest of any country in Table 1.

While the U.S. does have a famously high MRI rate of 26.5/million, Japan loves the MRI machine the most.  The Japanese MRI rate is 40.1/million.  “The cost structure of …[high-tech] treatment seems ideally suited to rapid diffusion in the U.S.: high fixed cost of installation, low marginal cost of operation, and reimbursement rates based on average rather than marginal cost.”

Conclusion

The Garber and Skinner paper provides a nice overview of the American health care system compared to those of other countries.  While the paper works mostly in generalization and country-level statistics, it does provide a nice framework for thinking about health care reform.  The American health care system is certainly inefficient, but so are the health care systems in other countries.  How inefficiency manifests itself depends on the health care system adopted by the country.  In the U.S., inefficiency is mostly due to the fact that “the U.S. typically does not consider effectiveness relative to its costs or to the costs of alternative treatments.”  Further, because of the fee-for-service compensation system, American patients have high quality care available to them, but at a high cost.  Further, fee-for-service compensation induces providers to recommended unnecessary or less cost-effective care to patients.

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