A Typology of Efficiency in Health Care: Implications for Measurement Paul G. Shekelle, M.D., Ph.D....

A Typology of Efficiency in Health Care:Implications for Measurement

Paul G. Shekelle, M.D., Ph.D.December 4, 2006

HusseyEfficiencyAMA-2 10/06/06

Project Overview

• AHRQ-funded project began in October 2005

• Three major tasks:

– Create a typology of efficiency

– Scan and review literature on efficiency

– Evaluate existing measures of efficiency

• Final report due February 2007


Overview of Talk

• Highlight motivation for current work

• Present RAND’s typology

• Review existing measures

• Examples


Measuring Efficiency

• Tremendous pressure exists from various stakeholders to measure “efficiency”

– Concern about rising health care costs– Variability in intensity of resource use not

associated with better processes and outcomes• Little is known about how well available metrics

capture the quantities of interest– Considerable lack of common language,

conceptual clarity• Little is known about the consequences (intended

and unintended) of applying those metrics at different levels in the system

• How is efficiency established in an environment with mixed payment methods?


Many Fortune 50 Companies Are Demanding Cost and Quality Metrics on Physicians

High/Low High/High

Low/Low Low/High

Efficient

Effective


Overview of Talk




• Examples


Efficiency Measures Typology Overview

1. Perspective

2. Output

3. Type of Efficiency

Who is asking what about whom, and why?

What is being produced?

What is the root cause of inefficiency? What are the

inputs to output?

Typology is organized in three tiers


Perspective

• We identify several potential points of view:– Health care “firms”

• Providers• Health plans• Purchasers

– Individuals– Society


Context Matters in Efficiency Measurement

StakeholderPrimary Fiduciary

ResponsibilityTypical Time Period

Physician Active patients in a panelAs long as responsible for

patient

HospitalPatients who are

admittedDuring hospital stay

Health Plan Enrollees Renewed annually

EmployerEmployees and covered

dependentsLength of employment

Society All residents Unlimited


Output: What’s Being Produced?

• We are interested in evaluating the efficiency with which particular health care products (outputs) are “manufactured”

• Being explicit about the output is critical (and often not done)

• We define two major categories of outputs:– Services– Health outcomes

• Producers (firms) define outputs– Financial flows (what is being sold) influence

definitions


Examples of Outputs by Type

Health Care Firm (Producer)

Service Output Examples

Health Outcome Output Examples

Physician

•Visits

•Procedures

•Diagnoses

•Prescriptions

•Preventable deaths

•Quality adjusted life years

Hospital

•Discharges

•Procedures

•Inpatient days

•Functional status

•Preventable deaths

•Preventable complications

Health Plan •Covered lives•Quality adjusted life years


Types of Efficiency

• Within the context of perspective and outputs, we identify three major types of efficiency:– Technical– Productive– Social

• Social efficiency is more often the focus for society than for firms

Applies primarily to firms


Technical Efficiency

A firm achieves technical efficiency when it cannot produce the same output with any fewer inputs


Productive Efficiency

A firm achieves productive efficiency when it cannot produce the same output at a lower cost


Technical and Productive Efficiency MeasuresPoint to Different Root Causes of Efficiency

Technical Efficiency

Inputs are put to good use

Productive Efficiency

Inputs are put to good use

Best mix of inputs chosen

Lowest prices are paid

+

+


Example: Technical vs. Productive Efficiency

• Technical Efficiency

– Hospital A has a good CPOE system and staff are able to use it well

– Hospital B has a CPOE system but it is difficult to use; staff follow old order entry process, but now with the extra step of computer entry

Hospital A has higher technical efficiency than Hospital B


Example: Technical vs. Productive Efficiency

• Productive Efficiency

– Hospital A bought a CPOE system, Hospital B did not; Hospital A now turns around orders more quickly

– Hospital A and Hospital C both bought a CPOE system, but Hospital A got a better deal

Hospital A has higher productive efficiency than Hospitals B and C


Social Efficiency

• Social efficiency is achieved when no member of society can be made better off without making another member worse off

– Giving more resources to one person implies that those resources have been taken away from someone else

– Appeal of “waste” is the notion that those resources do not benefit anyone currently


What should be our third tier?

• The concepts of technical v. productive efficiency resonates well with economists, but resonates less well with others

• We are exploring an alternative third tier that looks at the types of inputs rather than the technical v. productive concept

• In the alternative version, the approach to measuring the input used will affect the conclusions that can be drawn about how to improve efficiency

• Inputs could be characterized as costs, resource counts, costs using standardized prices, etc.


What about Quality?

• What role should the quality of the output play in a measure of efficiency?

• Some have proposed that any efficiency measure must include a measure of quality

• We favor keeping efficiency separate from quality:– Inputs for certain health care processes share

conceptual and measurement features– Metric to measure the quality of the output can

vary greatly – the example of surgery– Common use of these terms in the US separate

efficiency and quality


RAND’s Efficiency Typology

Society

Providers PurchasersHealth Plans

Health Care Firms

Individuals

Services Health Outcomes

Technical Productive Social

Per

spec

tive

Out

put

Typ

e


Overview of Talk




• Examples


Hospital Efficiency Dominates Peer-Reviewed Literature

0 20 40 60 80 100

Focus/unit

Number of articles

Hospital

Physician

Health plan

Nurse

Medicare

Area

Other


Econometric Analyses Dominate Measures in Peer-Reviewed Literature

0 50 100 150 200

Type of article

Number of articles

Review/meta-analysis Method developmentDescriptive Econometric analysis


Typical Measure from Peer-Reviewed Literature

• Cit = f (Yit , Pit , β) + ui + vit

• C is total costs

• Y is outputs– Hospital discharges and outpatient visits

• P is inputs– Capital costs and wages

• Estimated using stochastic frontier analysis


Different Worlds of Efficiency Measures

• There is an almost total separation between the published studies of health care efficiency and the use of efficiency measures by providers, payers, and purchasers

• Measures in use generally developed by vendors


Vendor-Developed Measures

• Episode-based: ETGs, MEGs, CRGs

– Claims grouped into episodes and attributed to physicians

– Measure is cost per episode (productive efficiency)

– Also can look at resource use per episode (technical efficiency)


Vendor-Developed Measures

• Population-based: ACGs, DxCGs

– Patient populations weighted by morbidity burden

– Measure is cost per risk-adjusted patient per year (productive efficiency)

– Also can look at resource use (technical efficiency)


Conclusions from Review of Measures

• Total disconnect between efficiency measurement by academics and vendors

– Less consensus efficiency measures than quality measures

• Little analysis of scientific soundness of measures

• Almost all measures use services as outputs


Overview of Talk




• Examples


Efficiency of Lasik Surgeons

MD1 MD2 MD3

Input (per procedure)

RN Labor 1 hour 45 minutes 45 minutes

RN Cost $40/hour $40/hour $40/hour

Anesthesia 40cc 40cc 40cc

Anesthesia cost $0.10/cc $0.10/cc $0.05/cc

Total input cost $44 $34 $32

Output (total)

Lasik Procedures 8/day 8/day 8/day

Visual Functioning +10 points +10 points +10 points

Patient Experience 89 89 89

MD2 and MD3 more technically efficiency than MD1MD3 also more productively efficient than MD1 and MD2


Conclusion

• Disconnect between academic world and vendors on efficiency measurement

• Not the same level of consensus as seen on quality measures

– Limited understanding of economics by non-economists

– Lack of research on scientific soundness of measures

– Lack of actionable measures


Some Challenges Ahead

• Important to be explicit about the perspective, output, and type of efficiency

– Not currently done systematically

• Important to develop measures to fill gaps

– Account for quality and outcomes of care

– Social efficiency

• Important to evaluate efficiency measures for scientific soundness, usability, etc.

• We need agreement on the role the quality of the output should play in a measure of efficiency

A Typology of Efficiency in Health Care: Implications for Measurement Paul G. Shekelle, M.D., Ph.D....

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