# Presentation: 278828

## Identifying, Categorizing, and Evaluating Healthcare Efficiency Measures

**Elizabeth A. McGlynn, Ph.D.**
**Associate Director, RAND Health**
**September 28, 2007**

## The Work Was Done by A Multidisciplinary Team

**Peter Hussey**
**John Romley**
**Han de Vries**
**Margaret Wang**
**Paul Shekelle**
**Dana Goldman**
**Martha Timmer**
**Susan Chen**
**Jason Carter**
**Carlo Tringale**

## Overview of Talk

**Highlight motivation for current work**
**Present RAND’s typology**
**Review existing measures**
**Examples**
**Concluding thoughts**

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

| High/Low | High/High |
| --- | --- |
| Low/Low | Low/High |

**Efficient**

**Effective**

## Purchasers Are Using Efficiency Metrics In Several Ways 

**Public reporting**** – information to help consumers make more cost-conscious decisions**
**Pay-for-performance**** – financial rewards to providers with better performance**
**Tiering**** – differential co-payments to encourage patients to choose higher performing providers**
**Selective contracting**** – contracts limited to providers who perform at a certain level**

## But...

**Little is known about what various stakeholders mean by “efficiency”**
**Considerable lack of common language, conceptual clarity**
**Link between content of metrics and proposed applications not always thought through**
**Little is known about the consequences (intended and unintended) of applying available metrics at different levels in the system **
**Can measures developed for one level (health plan) be applied at a different level (physician)?**

## Overview of Talk

**Highlight motivation for current work**
**Present RAND’s typology**
**Review existing measures**
**Examples**
**Concluding thoughts**

## Definition of Efficiency Measure

**The relationship between a specific product of the health care system (output) and the resources used to create that product (inputs)**
**Maximize output produced for a given input**
**Minimize inputs used for a given output**

## Efficiency Measures Typology Overview

**1. Perspective**

**2. Output(s)**

**3. Inputs**

**Who is asking what about whom, and why?**

**What is being produced?**

**What resources are used to produce the output?**

***Typology is organized in three tiers***

## Perspective

**We identify several potential points of view:**
**Health care “firms”**
**Physicians**
**Hospitals**
**Nursing homes**
**“****Agents”**
**Health plans**
**Employers**
**Individuals**
**Society**

## Context Matters in Efficiency Measurement

| Stakeholder | Who Are They
Responsible For? | Over What 
Time Period? |
| --- | --- | --- |
| Physician | Active patients in a panel | As long as responsible 
for patient |
| Hospital | Patients who are admitted | During hospital stay |
| Health Plan | Enrollees | Renewed annually |
| Employer | Employees and covered dependents | Length of employment |
| Society | All residents | Unlimited |

## Use of Information Varies With Perspective

**Health care firms can change the way the outputs are produced**
**Amount and/or mix of inputs**
**Service amenities associated with a product**
**Agents can principally change how much is paid, the conditions under which the product is purchased, or how the product is bundled**
**Individuals can principally change what they buy and from whom**

## Output: What’s Being Produced?

**We define two major categories of outputs:**
**Health services**
**Health outcomes**
**Being explicit about the output is critical (and often not done)**
**Producers tend to define outputs**
**Financial flows (how the product is purchased) influence definitions, for example:**
**Hospital day vs. a discharge**
**Quality adjusted life year vs. a covered life**

## Examples of Outputs by Type

| Entity | 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 |

## Inputs

**We identify two main ways of measuring inputs:**
**Physical**
**Financial**
**These map to the economic definitions of technical (physical) and productive (financial) efficiency**

## Technical and Productive Efficiency MeasuresPoint to Different Root Causes of (In)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

- +

- +

## 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**

## RAND’s Efficiency Typology

**Society**

**Providers**

**Purchasers**

**Health Plans**

**Health Care Firms**

**Individuals**

**Health Services**

**Health Outcomes**

**Physical**

**Financial**

- Perspective

- Output

- Input

## Overview of Talk

**Highlight motivation for current work**
**Present RAND’s typology**
**Review existing measures**
**Examples**
**Concluding thoughts**

## Identifying Existing Efficiency Measures

**Peer-reviewed literature**
**Medline and EconLit search: 1990-2005**
**Titles, abstracts, and articles reviewed by 2 independent reviewers; consensus resolution**
**Excluded non-U.S. studies**
**“****Gray” literature review**
**Purposive, reputational sampling**
**8 vendors identified & reviewed**

## Overview of Article Flow

- Titles  (n=4,324)

|  |
| --- |

| Rejected (n=3,754) |
| --- |

| Articles (n=563) |
| --- |

| Excluded (n=145) |
| --- |

| Detailed review (n=318) |
| --- |

| High priority (n=158) |
| --- |

## Measures in Literature Dominated by Hospital Perspective & Service Outputs

## 40 Different Physical Inputs Identified in Peer Reviewed Literature

**Physician labor**** – number of physicians (usually FTEs) or hours worked **
**Nursing labor**** – number of nurses (usually FTEs) or hours worked**
**Administrative, technical, or other labor categories**** – number of personnel (usually FTEs) or hours worked**
**Beds**** – the most common indicator of capital stock**
**Depreciation of assets**** - a measure of capital, calculated in various ways**

**Financial inputs appear almost as often as physical inputs**

## No measures using health services as outputs explicitly incorporated a measurement of qualityMethods for incorporating or accounting for quality are not well developed in peer reviewed literature

## 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**
**Academic measures focus on multiple input/output models**
**Vendor measures focus on specifying outputs**
**Purchasers and health plans are generally using measures developed by vendors**
**Little independent testing of reliability and validity has been reported on these metrics **

## Vendor-Developed Measures

**Episode-based: ETGs, MEGs, CCGs**
**Claims aggregated into clinically-defined episodes and attributed to different entities**
**Measure is cost per episode (productive efficiency)**
**Also can look at resource use per episode (technical efficiency)**

## Vendor-Developed Measures

**Population-based: ACGs, DxCGs, CRGs, RRU, PPMS**
**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)**

## Overview of Talk

**Highlight motivation for current work**
**Present RAND’s typology**
**Review existing measures**
**Examples**
**Concluding thoughts**

## Some Examples of Efficiency Measures

| Metric | Perspective | Outputs | Inputs |
| --- | --- | --- | --- |
| Cost per episode | Health plan | Health service bundle (cross entity) | Monetized total cost |
| Cost per discharge | Health plan | Health service bundle (w/in entity) | Monetized total cost |
| Cost per covered life | Employer | # employees with health insurance | Premium price charged by plan |
| Cost per health improvement | Medicare | Change in functional status | Total costs of care |
| Labor utilization | Hospital (internal) | Total number of discharges | Total number of nursing hours |
| Productivity | Physician (internal) | Number of patients seen per year | Total number of MD pt-care hours  |
| Generic prescribing rate | Health plan | Number of days rx supplied | Number of days generic rx supplied |

## Measures We Wouldn’t Classify as Efficiency

| Metric | Perspective | Output | Input | Why Not? |
| --- | --- | --- | --- | --- |
| Readmissions | Medicare | Discharges | Number of admissions within 30 days of discharge | Missing key events (death, different facility) |
| Rate of CABG surgery | Employer | Total number of enrollees | Number of bypass surgeries | No input specified |
| Cost-effectiveness | Society | Change in outcome | Change in cost (from using new vs. existing intervention)  | Result not specific to an entity; may help construct metrics |

## We Asked What the Evidence Was Regarding Whether the Measure Was...

**Important**
**Scientifically sound**
**Feasible**
**Actionable**

## Summary of Findings

| Criterion | Peer Reviewed | Vendor |
| --- | --- | --- |
| Important | Low | High |
| Scientifically sound | Low | Low |
| Feasible | Low | High |
| Actionable | Low | Low |

## Overview of Talk

**Highlight motivation for current work**
**Present RAND’s typology**
**Review existing measures**
**Examples**
**Concluding thoughts**

## Conclusion

**Disconnect between academic world and vendors on efficiency measurement offers opportunity**
**Although steps have been taken to achieve consensus among stakeholders, more work needs to be done**
**Typology can assist in structuring more explicit discussions about key issues**
**Scientific soundness of both academic and vendor-developed measures is largely unknown**
**Ability of potential users to act on the results of these measures is not well understood**

## Some Priorities for the Future

**Be explicit about the perspective, output, and inputs used in measure:**
**What’s the purpose, approach?**
**Develop measures to fill important gaps**
**When is it most important to incorporate quality measures?**
**Measures that use health outcomes as outputs**
**Measures for units of analysis other than hospital**
**Evaluate whether efficiency measures are scientifically sound, feasible, actionable**

## Slide 36