A Typology of Efficiency in Health Care: Implications for Measurement

1. A Typology of Efficiency in Health Care:Implications for Measurement Paul G. Shekelle, M.D., Ph.D.December 4, 2006

2. 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

3. Overview of Talk • Highlight motivation for current work • Present RAND’s typology • Review existing measures • Examples

4. 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?

5. Many Fortune 50 Companies Are Demanding Cost and Quality Metrics on Physicians Efficient Effective

6. Overview of Talk • Highlight motivation for current work • Present RAND’s typology • Review existing measures • Examples

7. Efficiency Measures Typology Overview Typology is organized in three tiers Who is asking what about whom, and why? 1. Perspective 2. Output What is being produced? What is the root cause of inefficiency? What are the inputs to output? 3. Type of Efficiency

8. Perspective • We identify several potential points of view: • Health care “firms” • Providers • Health plans • Purchasers • Individuals • Society

9. Context Matters in Efficiency Measurement

10. 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

11. Examples of Outputs by Type

12. 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

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

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

15. Technical Efficiency Technical and Productive Efficiency MeasuresPoint to Different Root Causes of Efficiency Productive Efficiency Inputs are put to good use Inputs are put to good use + Best mix of inputs chosen + Lowest prices are paid

16. 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

17. 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

18. 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

19. 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.

20. 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

21. RAND’s Efficiency Typology Society Health Care Firms Perspective Health Plans Providers Purchasers Individuals Health Outcomes Services Output Technical Productive Type Social

22. Overview of Talk • Highlight motivation for current work • Present RAND’s typology • Review existing measures • Examples

23. Hospital Efficiency Dominates Peer-Reviewed Literature

24. Econometric Analyses Dominate Measures in Peer-Reviewed Literature

25. 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

26. 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

27. 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)

28. 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)

29. 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

30. Overview of Talk • Highlight motivation for current work • Present RAND’s typology • Review existing measures • Examples

31. Efficiency of Lasik Surgeons MD2 and MD3 more technically efficiency than MD1 MD3 also more productively efficient than MD1 and MD2

32. 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

33. 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