Payment Policy Based on Measurement of Health Care Spending and Outcomes

MEASURING VARIATION IN SPENDING AND OUTcomes is a critical component of reforming physician and hospital payment policy. Analysis of area and hospital variations has a storied history and is increasingly common in media reports. If higher spending does not lead to better outcomes, health care could be delivered far more cost-effectively. But if approaches to measuring costs and outcomes are flawed, reductions in spending might yield worse outcomes. The 2 perspectives—look back and look forward—in measuringhospitaloutcomesandhospital resourceuse haveconceptual shortcomings inassessinghospitalperformance.Both approachesalsodistractfromtheoriginalpopulation-basedperspective first proposed in early work by the Dartmouth Atlas founder and central to the related analyses. Considering this community-basedperspectiveinconjunctionwithhospital-based perspectivescanavoidbiases in themeasurementofhealthsystem performance and thus better inform payment policy. The discussion on measurement methods matters for policy because different techniques may lead to divergent findings. The look back analyses have consistently demonstrated that spending variations are not correlated with outcomes. A variant of the Dartmouth Atlas technique has found instead that higher end of life treatment intensity in Pennsylvania was associated with small mortality benefits. A major look forward analysis showed that teaching hospitals in California with higher resource use had lower heart failure mortality. Dartmouth investigators counter that using the look forward approach for all Medicare inpatients with a diagnosis of acute myocardial infarction shows that higher resource use hospitals had modestly worse 1-year mortality. Both the look back and the look forward perspectives count costs and outcomes in different ways for different patients, as patients and their physicians decide on more conservative care in the community or more intensive care in the hospital. TheDartmouthAtlashospital-specific end-of-lifemeasures startwithaseriesofdecedentsandcountexpendituresforthem, whether treated conservatively outside of hospitals or intensively in hospitals. This approach excludes survivors, who benefited from resources used in their treatment, but includes conservatively treateddecedents. Because theDartmouthAtlas considers only fee-for-service Medicare decedents, spending among non-Medicare patients who did not die during the period may not correlate well with measured spending. The different lookforwardmethodhastheoppositefeatures. Itstarts withan indexadmissionandmeasuresoutcomes for thosepatients who lived or died. It misses patients treated outside the hospital when their cohort peers were admitted, but includes survivors of the index admission (FIGURE). These differences matter. The sample studied retrospectively is technically conditioned on an endogenous outcome (death). The sample studied prospectively is conditioned on a potentially endogenous event (the decision to admit). In consequence, neither approach may allow unbiased inferences of hospital performance; separately, neither may permit accurate inferences of community performance. Hospital performance measurement will be most biased if thedecision toadmitvaries systematicallyacrosshospitals and regions. Such variation may reflect greater illness levels in the population. However, higher utilization also may be due to a lower threshold for admission, driven for example by higher per capita supply of specialists and hospital beds. In such hospitals, sufficient slack capacity allows physicians to work “downanappropriatenesscurve” in theiradmissiondecisions. Oncepatientswhoareverysickhavebeenadmitted, suchhospitals may tend to admit patients in better general health with anexpectedgoodresponse to treatment.Suchselectionmeans theseadmittedpatientsaremore likely todowell andconsume fewerresourcesonaverage. Inanotherhospital,ahigherthreshold foradmissionwould lead to theoppositephenomenon.Selection now makes it more likely that those patients who are admitted tend to do poorly and consume more costly care. As a result, the first hospital appears to be a more careful steward of resources and a better performer than the other hospital. Looking forward sees lower costs and better outcomes after an index admission, because of better selection of hospitalized patients. Looking back sees lower end-of-life spending for all local decedents, because proportionately more decedents did not consume hospital-based intensive care or other expensive services. Hospitals do appear to be ranked similarly on spending regardless of which approach is used.