Efficiency in Health Care: Do

Anyone Know What It Is?

James F. Burgess, Jr., PhD

Senior Investigator, COLMR, VA Bost

HERC Health Economics Cyber Semi

April 20, 2011 – 2:00‐3:30PM Easte
Preview of the Conclusion Conclusion

•ANSWER: No•But in the Q&A I Will

Entertain AlternativeInterpretations (so ge

ready and submit the
More Seriously, Seriously, Why is this a Pro

Pro

• As we will see, the overarching problem is

quality: if you have a type of health care sor delivery where quality is irrelevant, thecan probably probably can define efficiency efficiency in some

reasonable way (but how often is that true

• Economists tend to draw a titanium wall

between efficiency and equity, so another 

(which I will not discuss too much) is that 

we get “efficiency efficiency” that does not imply eq

eq

allocation of those services to those who vthem most
Definitions of Health Care Efficie

Efficie

• Definitions higg g hli hting the central role of 

with two production process foci for chan

• (1) Maximize health care outputs produce

a fixed set of health care inputs and input 

holding health care output quality constan

• (2) Minimize Minimize health care inputs (related (related to 

minimization) producing a fixed set of hea

outputs where input/output quality also a

• How many people thi kn nei ht er d fi i i definition

definition (1), definition (2), or both togetdefine Health Care Efficiency? My answer: 
Poll Question #1

• Which of these define health care effici

effici

(with fixed factors including quality as a

– Both minimizing minimizing inputs and maximizing maximizing ou

ou

– Minimizing inputs

– Maximizing outputs– None of the above (neither)
What s’ the Central Central Problem Problem H

• What do we mean by quality quality and what do

really mean to hold all this quality fixed?

• Institute Institute of Medicine Medicine defines defines quality quality as

multidimensional and characterized by ca

is safe, timely, timely, effective, effective, efficient, efficient, equitabl

equitabl

patient‐centered

• I like this definition definition (you may have anothe

anothe

you want to discuss later), but once qualit

multidimensional, holding it fixed is a big i
Quality as Multidimension

• Can we even fix quality in any way other than a t

experiment as we actually change other things?

• Is quality an input, an output or more likely both

– Depends Depends on the context context of the problem problem

– Are they separate inputs/outputs or adjusters to othe

• What is the data generating process underlying a

particular quality quality measure measure or measures? measures?

– Multidimensional quality measures tend to be “uncor

• What is fixed in the model or change being cons

– We can thi kn of (1) as output ori d ente ( d expan outpu

inputs) and (2) as input oriented (shrink inputs for fixe

and the orientation clearly matters depending on how 

to q y ualit ( p in uts or outp ) uts?
Poll Question #2

• Does it make sense to see quality quality as fixe

defining health care efficiency?

– Yes, fixing quality quality makes sense (inputs (inputs & o

o

– Yes, but only setting input quality factors a– Yes, but only setting setting output quality quality factors factors – Maybe, it depends on the context of the s– No, i t npu and out t pu ori td en e quality f t ac 

always are changing and setting them as fi

does not make sense practically practically or concep

concep
Major Issues in Defining Quality f

Efficiency Question

• Can we discuss this in general if context is so m

the issue? (need to be cautious, but we can, I t

• Do we consider each quality measure independ

do we/can we d fi e ne a composite measure of q

– Formative Construct Quality Measures (formed fr

different dimensions of quality with some type of 

– Reflective Construct Quality Measures (latent ma

from correlated measures)

• Maybe quality quality is operating operating along a different different dim

dim

orthogonal to the input/output based product

process measurement?
Fixed Inputs ‐ Add an Outpu

Outpu

ety Measur Not an OutpuQuali

Utilization Based Output
Quality vs. Efficiency: Which O

Sh ld ou be Central to Analysi

• Maybe we should hold efficiency efficiency fixed a

focus on increasing quality?

• This idea is inherent inherent in the “value” mov

mov

• But does anyone see the circular reason

al d rea y have (k i l ) nowingly) i d d? ntroduced?

• Let us look at three other popular defin

out there promulgated by various

organizations and see what else we lea
Definitions of Efficiency Promulg

by Major US Organizations

• MedPAC: Using fewer inputs to get the same or be

outcomes, efficiency combines concepts of resour

and quality

• NQF: A measurement construct of cost of care or r

utilization associated with a specified level of qual

care

• AQA: A measure of cost of care associated with a s

level of quality of care. “Efficiency of care” is a me

the relationship of the cost of care associated with 

specific level of performance measured with respe

other five IOM aims of quality quality ((EFFICIENCY ((EFFICIENCY IS QUA

QUA

• RAND and AHRQ:

Poll Question #3

• Which of these four definitions definitions solve th

“efficiency in health care” definition pro

– MedPAC: MedPAC: Fewer inputs and same or BETTE

quality

– NQF: Cost or resource resource use with specified specified q

q

– AQA: Relating cost of care to other 5 IOM – RAND/AHRQ RAND/AHRQ Typology: Typology: Way of establishing establishing

context

– Still none of these definitions definitions are successf

successf
Obama s’ Focus on Waste and F

• In Google the terms “Obama + “health 

waste” generates 25,800,000 hits this w

• Adding “fraud” drops that to 4,810,000 4,810,000

(mostly because of the number of hits f

“Health Care Reform as a waste”)

• Conceptually, we might all agree with t

Obama speeches (and perhaps policies

this question, but is waste and fraud a udefinition of efficiency (inefficiency)?
Poll Question #4

• What is the most important problem you t

inhibits the use of eliminating waste and f

a working definition of efficiency?

– We cannot identify identify waste and fraud accuratel

accuratel

– Even if we know what waste and fraud are wh

see them, it is not useful for framing policy to

eli i t m na e it

– Markets cannot be deployed effectively (mark

imperfections) to eliminate waste and fraud

– Waste and fraud are not a large enough comp

the true definition of inefficiency

– Waste and fraud are a good working working definitio

definitio
Palmer and Torgerson (BMJ, 19

Approac

h

Efficiency is concerned concerned with the

relation between resource inpu

(costs, (costs, in the form of labour, cap

cap

or equipment) and either

intermediate outputs (numbers

treated, waiting time, etc) or fin

health outcomes outcomes (lives saved, lif

years gained, quality adjusted li

years (QALYs)) (QALYs)) with an ideal foc

final health outcomes
More Details Details on Palmer and Torg

Torg

• Their focus is patient centered on economic evaluation of tr• Quality is subsumed in the health outcome structure

• “Inefficiency exists when resources could be reallocated in a 

would increase increase the health outcomes outcomes produced produced” (fix resourc

resourc

care and maximize health outcomes)

– “Technical efficiency addresses the issue of using given r

to maximum advantage advantage”

– “Productive efficiency of choosing different combination

resources to achieve the maximum health benefit for a g

– “Allocative efficiency of achieving the right mixture of he

programmes to maximise the health of society”

– Although productive efficiency implies technical efficien

allocative efficiency implies productive efficiency, none o

converse implications necessarily hold
Poll Question #5

• How does the Palmer and Torgerson defin

stand up as a definition of efficiency in he

care?

– Yes, this is the right way to see it– No, I still like one of the previous definitions p

better

– No, since we cannot actually measure it in thi

way, we do not actually know what it is, but t

important definition to move research forwar

– No, I have not seen any adequate definition p

in this talk (I encourage you to post your best

definition for the Q/A that follows shortly)
Where are the key research direc

to improve this state of affair

• Some interesting interesting recent Macro work:

– UN Development Program Human Develo

Index (Despotis; Mahlberg and Obersteine

– WHO Health System Indicators (Lauer, Lov

Murray and Evans; Hollingsworth and Wild

• More interesting MICRO work needed!• Hollingsworth and Street 2006 HE Edito

Weaknesses of the Demand Side of the

Market for Efficiency
Discussion and Conclusion

• Since I plan to work off of the responses to 

poll questions (and I do not know what yoresponses will be), I will make some genercomments comments at this point – not sure what ye

• Understanding the “value equation” and w

focus on, quality or efficiency, is going to b

important

• I still assert that the answer is no, no one 

knows what efficiency efficiency in health care is

• But I hope this talk stimulates further rese

that makes p g ro ress toward better unders