Measuring efficiency in health care is extremely difficult. If there was an accurate scientific measure of patient health (e.g., a 1-100 scale) before and after treatment. That way, one could measure changes in health before and after treatment per every dollar spent. However, measuring health outcomes is very difficult.
In the academic literature, hospital efficiency most commonly measured as: “risk-adjusted average length of stay (Weingarten et al. 2002); cost per risk-adjusted discharge (Conrad et al. 1996); and the cost of producing both risk-adjusted hospital discharges and hospital outpatient visits (Rosko 2004).” Measures of physician efficiency often use RVU measures.
On the other hand, private vendors often uses “groupers.” Groupers are algorithms that group different treatments into a single episode of care for a specific illness. For acute illnesses, hospital and physicians treatments are grouped together into one episode of care. For chronic illnesses, vendors look at costs over a specific period of time. “The market leaders among episode-based measures are Episode Treatment Groups (ETGs) and Medical Episode Groups (MEGs), which use algorithms primarily based on diagnosis codes and dates of services to group-related insurance claims into episodes.”
If the grouper algorithms are correct (a big if), I believe private vendor methodology provides a better measure of efficiency since they examine the entire episode of care. Although they may be a superior measure of efficiency, they may not help improve efficiency. If I see certain episodes of care are efficiency or not in certain areas, it may be difficult to pinpoint which providers are being inefficient if the patient visits multiple physicians or hospitals. On the other hand, the academic literature is more likely to use the hospital or physician as the unit of measurement. This allows each physician or hospital to improve on their efficiency measures, but may not reflect the true quality of care if patients see many physicians or are hospitalized at a number of hospitals. For instance, a hospital may have a high efficiency score (low cost per procedure), but if they do a bad job and the patient is re-hospitalized at a different hospital, this will not show up in the academic efficiency measures, but will be captured by the vendor measures.
- Hussey et al. (2009) “A Systematic Review of Health Care Efficiency Measures,” Health Services Research, v44(3):784-805.