Chapter 7. Efficiency
National Healthcare Quality Report, 2011
Health care cost increases continue to outpace the rise in wages, inflation, and economic growth. One approach to containing the growth of health care costs is to improve the efficiency of the health care delivery system. This approach would allow finite health care resources to be used in ways that best support high-quality care.
Recent work examining variations in Medicare spending and quality shows that higher cost providers do not necessarily provide higher quality care, illustrating the potential for improvement (Fisher, et al., 2003). Improving efficiency in the Nation's health care system is an important component of Department of Health and Human Services (HHS) efforts to support a better health care system.
Part of the discussion about how to improve efficiency involves the question about how best to measure it. Varying perspectives and definitions of health care efficiency exist; although consensus has not yet emerged on what constitutes appropriate measurement of efficiency, AHRQ has supported development in this area. This chapter has been largely shaped by a number of documents that have developed the field of health care efficiency measurement. One major contributor is an AHRQ-commissioned report by RAND Corporation, which systematically reviewed efficiency measures, assessed their tracking potential, and provided a typology that emphasizes the multiple perspectives on health care efficiency (McGlynn, 2008).
This chapter is organized around the concepts of overuse and misuse. As noted in the National Strategy for Quality Improvement in Health Care,i Achieving optimal results every time requires an unyielding focus on eliminating patient harms from health care, reducing waste, and applying creativity and innovation to how care is delivered."
The measures this year are presented in the following layout:
- Inappropriate medication use:
- Adults age 65 and over who received potentially inappropriate prescription medications.
- Preventable hospitalizations:
- Potentially avoidable hospitalization rates for adults.
- Potentially avoidable hospitalization costs.
- Potentially avoidable hospitalizations among Medicare home health patients.
- Perforated appendixes.
- Potentially harmful preventive services with no benefit:
- Males age 75 and over who had a prostate-specific antigen (PSA) test or a digital rectal exam (DRE) within the last 12 months.
- Hospital cost efficiency.
Inappropriate Medication Use
Some drugs are potentially harmful for older patients but nevertheless are prescribed to them (Zhan, et al., 2001)ii Using inappropriate medications can be life threatening and may result in hospitalization, as well as increased costs of pharmaceutical services (Lau, et al., 2005). To measure inappropriate medication use, we have followed the Beers criteria, which have been generally accepted by the medical community and by expert opinion, although there is still some disagreement. This disagreement relates to the many factors that must be considered when identifying what constitutes inappropriate use by certain populations (Zhan, et al., 2001).
Figure 7.1. Adults age 65 and over who received potentially inappropriate prescription medications in the calendar year, by age and insurance status, 2002-2008
Source: Agency for Healthcare Research and Quality, Medical Expenditure Panel Survey, 2002-2008.
Denominator: Civilian noninstitutionalized population age 65 and over.
Note: For this measure, lower rates are better. Prescription medications received include all prescribed medications initially purchased or otherwise obtained, as well as any refills. Medicare + public are individuals with Medicare and some other public insurance (e.g., Medicaid).
- From 2002 to 2008, there were no statistically significant differences between age groups in the population over age 65 receiving potentially inappropriate medications (Figure 7.1).
- From 2002 to 2008, there were no consistent gaps between patients with Medicare and private insurance and those with Medicare only or with Medicare and other public insurance.
Also, in the NHDR:
- In 2008, the percentage of female patients who received potentially inappropriate medications was significantly higher than for males.
New! Potentially Avoidable Hospitalization Rates for Adults
Hospitalization is expensive. Preventing avoidable hospitalizations could improve the efficiency of health care delivery. To address potentially avoidable hospitalizations from the population perspective, data on ambulatory care-sensitive conditions are summarized here using the AHRQ Prevention Quality Indicators (PQIs). Not all hospitalizations that the AHRQ PQIs track are preventable. But ambulatory care-sensitive conditions are those for which good outpatient care can prevent the need for hospitalization or for which early intervention can prevent complications or more severe disease.
The AHRQ PQIs track these conditions using hospital discharge data. Hospitalizations for acute conditions, such as dehydration or pneumonia, are distinguished from hospitalizations for chronic conditions, such as diabetes or congestive heart failure. Results presented this year apply a modified version 4.1 of the AHRQ Quality Indicators and are not comparable to results from previous years.
Figure 7.2. National trends in potentially avoidable hospitalization rates for adults, by type of hospitalization, 2000-2008
Source: Source: Agency for Healthcare Research and Quality (AHRQ), Healthcare Cost and Utilization Project, Nationwide Inpatient Sample, and AHRQ Quality Indicators, modified version 4.1, 2000-2008.
Denominator: Civilian noninstitutionalized adults age 18 and over.
Note: For this measure, lower rates are better. Annual rates are adjusted for age and gender.
- From 2000 to 2008, the overall rate of avoidable hospitalizations fell from 1,657 to 1,434 per 100,000 population (Figure 7.2). Declines in avoidable hospitalizations were observed for both acute and chronic conditions.
- In 2008, the top 3 State achievable benchmark for all potentially avoidable hospitalizations was 818 per 100,000 population.iii The overall achievable benchmark could not be attained for 20 years.
- The top 3 State achievable benchmark for acute potentially avoidable hospitalizations was 387 per 100,000 population.iv The acute achievable benchmark could not be attained for 24 years.
- The top 3 State achievable benchmark for chronic potentially avoidable hospitalizations was 394 per 100,000 population.v The chronic achievable benchmark could not be attained for almost 20 years.
Also, in the NHDR:
- In all years, rates of potentially avoidable hospitalizations were lower among Asians and Pacific Islanders compared with Whites and higher among Blacks compared with Whites.
- In all years, rates of potentially avoidable hospitalizations were higher among residents of areas in the lowest and second income quartile compared with residents of the highest income quartile.
New! Potentially Avoidable Hospitalization Costs
The costs associated with potentially avoidable hospitalizations can be calculated to estimate how much money could be saved theoretically by eliminating such services. For this analysis, total hospital charges were converted to costs using Healthcare Cost and Utilization Project (HCUP) cost-to-charge ratios based on hospital accounting reports from the Centers for Medicare & Medicaid Services. Therefore, cost estimates in this section refer to hospital costs for providing care but do not include either payers' costs or costs for physician care that are billed separately.
Figure 7.3. Total national costs associated with potentially avoidable hospitalizations, 2000-2008
Source: Agency for Healthcare Research and Quality (AHRQ), Healthcare Cost and Utilization Project, Nationwide Inpatient Sample, and AHRQ Quality Indicators, modified version 4.1, 2000-2008.
Denominator: Civilian noninstitutionalized adults age 18 and over.
Note: For this measure, lower rates are better. Annual rates are adjusted for age and gender. Costs are adjusted for inflation and are represented in 2008 dollars.
- From 2000 to 2003, total national hospital costs associated with potentially avoidable hospitalizationsvi increased from $24.9 billion to $28.0 billion. Since then, costs have been gradually declining, to $26.4 billion in 2008 (Figure 7.3).
- These changes are largely attributable to avoidable hospitalizations for chronic conditions, with national hospital costs that increased from $14.3 billion to $16.2 billion between 2000 and 2003 and then declined to $15.3 billion in 2008.
- Changes in avoidable hospitalizations for acute conditions also contributed, with national hospital costs that increased from $10.5 billion to $11.8 billion between 2000 and 2003 and then declined to $11.1 billion in 2008.
Potentially Avoidable Hospitalizations Among Medicare Home Health Patients
Many patients are hospitalized while receiving care from home health agencies, with resulting high costs and care transition problems. A number of these hospitalizations are appropriate. However, some hospital admissions could be prevented with better primary care and monitoring in these settings, or the patient could receive appropriate treatment in a less resource-intense setting.
Using the AHRQ PQIs, we track potentially avoidable hospitalizations among Medicare patients occurring within 30 days of the start of home health care. These patients may differ from patients who are predominantly admitted for avoidable conditions from home but are not receiving home health services. Some of these patients are receiving appropriate primary care and others have not visited a health care provider for years.
In contrast, Medicare home health patients have regular contact with health providers, which should reduce rates of avoidable hospitalization. However, these patients are also more acutely ill, may become seriously ill when affected by a new illness, and may have multiple comorbidities. Medicare patients in these settings often have been hospitalized recently. Therefore, an avoidable hospitalization may represent a return to the hospital, perhaps against the expectation that the patient no longer needed acute care.
For application to home health settings, the potentially avoidable stays are identified within a defined time period, 30 days, from the home health start date. If a patient is hospitalized more than once in that period, only the first stay is recognized for the measure.
Data on home health patients come from Medicare fee-for-service (FFS) home health claims and Outcome and Assessment Information Set patient assessment information. These data are linked with Medicare Part A acute care hospital claims to determine hospitalizations for potentially avoidable conditions.
Figure 7.4. Medicare home health patients with potentially avoidable hospitalizations within 30 days of start of care, by age, 2000-2010
Source: Centers for Medicare & Medicaid Services, Outcome and Assessment Information Set linked with Medicare Part A claims (100%), 2000-2010.
Denominator: Adult nonmaternity patients starting an episode of skilled home health care.
Note: For this measure, lower rates are better. Rates standardized to the 2006 patient population according to Medicare enrollment category.
- Between 2000 and 2010, hospitalizations for potentially avoidable conditions within 30 days of home health episode start declined from 5.0% to 3.6% (data not shown).
- From 2000 to 2010, among all age groups over 65, the percentage of potentially avoidable hospitalizations within 30 days of home health episode start significantly decreased (Figure 7.4).
Perforation is a severe complication of appendicitis that allows intestinal contents to spill into the abdominal cavity. Patients with a perforated appendix have a worse prognosis and require longer recovery times after surgery than patients whose appendix does not rupture. More timely detection and treatment of appendicitis can reduce the percentage of appendicitis admissions in which rupture has occurred.
Figure 7.5. Perforated appendixes per 1,000 admissions for appendicitis, by age and gender, 2004-2008
Source: Agency for Healthcare Research and Quality, Healthcare Cost and Utilization Project, State Inpatient Databases disparities analysis file, 2004, 2005, 2007, and 2008.
Note: For this measure, lower rates are better. Data for 2006 are not included, because a new version of the Prevention Quality Indicators software was used to calculate rates and 2006 was not included in the calculation.
- Between 2004 and 2008, the rate of perforated appendixes for all age groups over 65 were significantly higher than for the 18-44 age group (Figure 7.5).
- Also during this period, the rate of perforated appendixes was higher for males than for females. In 2008, the rate for males was 289 per 1,000 admissions compared with 246 per 1,000 admissions for females.
Potentially Harmful Preventive Services With No Benefit
This section highlights waste and opportunities to reduce unnecessary costs. Waste includes overuse, underuse, and misuse of health care services. This section focuses on overuse, while underuse and misuse are addressed in various other sections of this report. Many of the effectiveness measures relate to people not getting services they need, i.e., underuse. Many of the safety measures relate to people getting services in a hazardous manner, i.e., misuse.
An example of overuse that can be reduced through education is PSA screening or a DRE to check for prostate cancer among men age 75 and over. The U.S. Preventive Services Task Force recommended against these tests in 2008 (AHRQ, 2008) and there is continued concern that administration of the PSA test or DRE in men age 75 and over will lead to false positives and subsequent unnecessary treatments. Reductions in costs and improvements in quality should result from reductions in unnecessary PSA screening and DREs.
Figure 7.6. Males age 75 and over who reported having a prostate-specific antigen test or a digital rectal exam within the last 12 months, by education and health status, 2004-2010
Source: Centers for Disease Control and Prevention, Behavioral Risk Factor Surveillance System, 2004, 2006, 2008, and 2010.
Denominator: Adult males age 75 and over with no history of prostate cancer.
Note: Data for 2004, 2006, and part of 2008 precede the U.S. Preventive Services Task Force recommendation against screening men age 75 and over. It should be noted that PSA tests and DREs are provided to this population for purposes unrelated to prostate cancer screening. Data to determine the purpose of these services were unavailable and all reported PSA tests and DREs are reflected in the data shown.
- From 2004 to 2010, the overall percentage of males age 75 and over who had a PSA test or a DRE within the last 12 months increased from 71% to 74% (data not shown).
- In the same period, the percentage of males age 75 and over who had a PSA test or a DRE within the last 12 months was lower for males who had less than a high school education than for males who had some college education (in 2010, 64% compared with 77%; Figure 7.6).
- In 2008, the top 5 State benchmark for males age 75 and over who had a PSA test or a DRE in the last 12 months was 62%.vii There was no clear evidence of movement toward the benchmark for this measure.
Also, in the NHDR:
- The percentage of males age 75 and over who had a PSA test or a DRE within the last 12 months was lower for Blacks than for Whites.
Trends in Hospital Efficiency
Significant attention has been paid to cost variations across providers and across the country. Yet it is often difficult to separate out costs that reflect differences among providers in outputs, patient burden of illness,viii or care quality.ix To address the provider perspective, hospital cost efficiency is examined using a technique from the field of econometrics that can account for such differences.x This analysis uses data from the American Hospital Association Annual Survey and from Medicare Cost Reports, as well as data derived from the application of AHRQ Quality Indicators software and the Comorbidity Software to HCUP data.
Here, hospital efficiency is defined as the ratio of best practice costs to total observed costs. For example, given the types and quantities of outputs a hospital produces, the input prices it pays, its case mix, its quality, and its market characteristics, a theoretical best practice hospital might incur expenses amounting to $90 million. A comparison hospital in an identical situation with total expenses of $100 million would have an estimated cost efficiency of 90%.
Cost-efficiency estimates have been converted to index numbers with a base of 100 for the year 2004 as a way to place less emphasis on the specific magnitude of estimated hospital efficiency than on its general trend (Mutter, et al., 2008).
Figure 7.7. Average estimated relative hospital cost efficiency index for a selected sample of urban general community hospitals, 2004-2008
- The highest level of efficiency occurred in 2004. Although the differences in efficiency levels were very small, the difference between 2004 and every other year was statistically significant. Efficiency scores dipped in 2005 and recovered only slightly in 2006. More substantial improvements were observed in 2007 and 2008, and the differences in mean efficiency between these 2 years and 2005 were statistically significant (Figure 7.7).
- The most cost-efficient hospitals (i.e., hospitals in the highest quartile of estimated cost efficiency) compared favorably with the least cost-efficient hospitals (i.e., hospitals in the lowest quartile of estimated cost efficiency) on a number of important variables. The most cost-efficient hospitals had lower costs and fewer full-time-equivalent employees per case-mix-adjusted admission, compared with the least cost-efficient hospitals. The most cost-efficient hospitals also had a shorter average length of stay, although the difference was not statistically significant (Table 7.1).
- The most cost-efficient hospitals had a higher operating marginxi than the least cost-efficient hospitals (Table 7.1).
Table 7.1. Correlates of hospital cost efficiency
|Measure||Estimate||Standard deviation||Standard error mean|
|Cost per case mix-adjusted admission:|
|Top quartile of hospital cost efficiency||5,429.69||1,386.37||69.58|
|Bottom quartile of hospital cost efficiency||8,022.93||2,976.76||149.40|
|Full-time equivalent employees per case mix-adjusted admission:|
|Top quartile of hospital cost efficiency||0.40||0.11||0.01|
|Bottom quartile of hospital cost efficiency||0.54||0.19||0.01|
|Average length of stay (days):|
|Top quartile of hospital cost efficiency||5.00||1.54||0.08|
|Bottom quartile of hospital cost efficiency||5.16||1.97||0.10|
|Top quartile of hospital cost efficiency||0.01||0.16||0.01|
|Bottom quartile of hospital cost efficiency||-0.07||0.22||0.01|
Source:Agency for Healthcare Research and Quality. Analysis based on 2008 values for 1,590 urban general community hospitals.
It is important to note that the figures reported above are not national estimates and that no conclusions about national trends should be inferred. However, the hospitals in the analysis represent about 61% of all non-Federal urban general community hospitals and therefore provide an indication of the general trend that cost efficiency may be following.
Elixhauser A, Steiner C, Harris DR, et al. Comorbidity measures for use with administrative data. Med Care 1998 Jan;36(1):8-27.
Fisher ES, Wennberg DE, Stukel TA, et al. The implications of regional variations in Medicare spending. Part 1: the content, quality, and accessibility of care. Ann Intern Med 2003 Feb 18;138(4):273-87.
Lau DT, Kasper JD, Potter DE, et al. Hospitalization and death associated with potentially inappropriate medication prescriptions among elderly nursing home residents. Arch Intern Med 2005 Jan 10;165(1):68-74.
McGlynn E. Identifying, categorizing, and evaluating health care efficiency measures. Rockville, MD: Agency for Healthcare Research and Quality; 2008. AHRQ Publication No. 08-0030.
Mutter RL, Rosko MD, Wong HS. Measuring hospital inefficiency: the effects of controlling for quality and patient burden of illness. Health Serv Res 2008 Dec;43(6):1992-2013. Epub 2008 Sep 8.
Screening for prostate cancer. Rockville, MD: Agency for Healthcare Research and Quality; 2008. Available at: http://www.uspreventiveservicestaskforce.org/uspstf/uspsprca.htm . Accessed August 13, 2009.
Zhan C, Sangl J, Bierman AS, et al. Potentially inappropriate medication use in the community-dwelling elderly: findings from the 1996 Medical Expenditure Panel Survey. JAMA 2001 Dec 12;286(22):2823-9.
i. Available at http://www.healthcare.gov/center/reports/quality03212011a.html.
ii. Drugs that should always be avoided for older patients include barbiturates, flurazepam, meprobamate, chlorpropamide, meperidine, pentazocine, trimethobenzamide, belladonna alkaloids, dicyclomine, hyoscyamine, and propantheline. Drugs that should often or always be avoided for older patients include carisoprodol, chlorzoxazone, cyclobenzaprine, metaxalone, methocarbamol, amitriptyline, chlordiazepoxide, diazepam, doxepin, indomethacin, dipyridamole, ticlopidine, methyldopa, reserpine, disopyramide, oxybutynin, chlorpheniramine, cyproheptadine, diphenhydramine, hydroxyzine, promethazine, and propoxyphene.
iii. The top 3 States that contributed to the overall achievable benchmark are Hawaii, Utah, and Washington.
iv. The top 3 States that contributed to the acute achievable benchmark are Hawaii, Utah, and Washington.
v. The top 3 States that contributed to the chronic achievable benchmark are Utah, Vermont, and Washington.
vi. Adjusted for inflation. The inflation adjustment was done using the gross domestic product implicit price deflator.
vii. The top 5 States that contributed to this benchmark are California, Hawaii, Louisiana, New Jersey, and Tennessee.
viii. This analysis controls for the following components that Elixhauser, et al. (1998) contend are part of patient burden of illness: (1) primary reason for admission to the hospital, (2) severity of the principal diagnosis, (3) iatrogenic complications, and (4) comorbidities that are unrelated to the primary diagnosis but have a substantial impact on both the resources used to treat the patient and the outcomes of the care provided.
ix. To control for quality, this analysis uses risk-adjusted rates of the following AHRQ Quality Indicators: in-hospital mortality for acute myocardial infarction, in-hospital mortality for congestive heart failure, in-hospital mortality for stroke, in-hospital mortality for gastrointestinal hemorrhage, in-hospital mortality for hip fracture, in-hospital mortality for pneumonia, failure to rescue, iatrogenic pneumothorax, infection due to medical care, and accidental puncture and laceration (Mutter, et al., 2008).
x. Stochastic frontier analysis (SFA) is the technique used in this analysis. SFA can estimate best practice costs as the value total costs would be if full efficiency were attained. The hospital-level "cost efficiency" estimates that SFA produces measure whether output is obtained using the fewest inputs (i.e., technical efficiency), as well as whether output is produced using the optimal mix of inputs, given prices (i.e., allocative efficiency), the size of a hospital's operations (i.e., scale efficiency), and the range of a hospital's operations (i.e., scope efficiency), including possible overspecialization or overdiversification (McGlynn, 2008).
xi. Operating margin is a commonly used measure of profitability from operations or the excess of revenue over expenses. It is calculated by the following formula: Operating margin = (total net patient revenue − total operating expenses) / total net patient revenue.
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