New Insights into Hospital Efficiency: Linking Costs and Patient Outcomes

A new discussion paper from the Centre of Health Economics (CHE), University of York, reports first results from a programme of collaborative research by CHE, Nancy Devlin of the OHE, and David Parkin of NHS South of England. The study, funded by the UK Department of Health, is the first to examine the relationship between hospital costs and patients’ health outcomes.

A new discussion paper from the Centre of Health Economics (CHE), University of York, reports first results from a programme of collaborative research by CHE, Nancy Devlin of the OHE, and David Parkin of NHS South of England.

The study, funded by the UK Department of Health, is the first to examine the relationship between hospital costs and patients’ health outcomes. The work uses information on patient reported health from the UK NHS Patient Reported Outcomes Measurement (PROMs) programme, linking data from hospital level PROMs to inpatient records. The analysis explores (1) the extent to which variations in cost are associated with variations in patients’ health gain and (2) whether judgments about the relative performance of hospitals are different when both costs and outcomes are taken into account.

This research represents an important improvement in the way hospital efficiency is measured. A limitation of previous studies of hospital efficiency and performance has been the difficulty of measuring the quality of care. Relying on readmission rates or post-surgical mortality rates gives an incomplete picture of the hospital’s overall performance, which can lead to incorrect conclusions about efficiency. The availability of PROMs data means information now is available on the extent to which hospitals actually improve patients’ health — and what the relationship is between that and hospital costs.

The study uses multi-level modelling to account for the clustering of patients in providers and to isolate unexplained cost variations. Initial results suggest that a great deal of variation exists in costs across hospitals and that these are not strongly related to hospital performance in achieving improvements in patient health. This in turn suggests some scope for improving efficiency without reducing quality of care.

The research team currently is exploring these issues further using individual patients’ PROMs data. That research is funded by a Health Services Research grant from the UK National Institute for Health Research; initial results from that project will be reported at the joint CES-HESG conference in January 2012.

Download Gutacker, N., Bojke, C., Daidone, S., Devlin, N., Parkin, D. and Street, A. (2011) Truly inefficient or providing better quality of care? Analysing the relationship between risk-adjusted hospital costs and patients’ health outcomes. CHE Research Paper 68. University of York.