What Role Does Efficiency Play in Understanding the Relationship Between Cost and Quality in Physician Organizations?. Issue 12 (December 2017)

• Record Type: Journal Article
• Authors: Paddock, Susan M.; Damberg, Cheryl L.; Yanagihara, Dolores; Adams, John L.; Burgette, Lane; Escarce, José J.
• Is Part Of: Medical care. Volume 55:Issue 12(2017)
• Publication Date: 2017-12
• Subjects: value-based purchasing -- health care value -- quality of care -- health care costs; Economics, Medical -- Periodicals; Insurance, Health -- Periodicals; Santé, Services de -- Administration -- Périodiques; Soins médicaux -- Périodiques; Medical economics -- Periodicals; Health insurance -- Periodicals; Medical economics -- United States -- Periodicals; Health insurance -- United States -- Periodicals; Comprehensive Health Care -- Periodicals; Personal Health Services -- Periodicals; Gezondheidszorg; Économie de la santé -- Périodiques; Santé, Services de -- Périodiques; Health insurance; Medical economics; United States; Periodicals; 362.10973
• DOI: 10.1097/MLR.0000000000000823
• Languages: English
• ISSNs: 0025-7079

Abstract

Abstract : Background: The belief that there is inefficiency, or the potential to improve patient health at current levels of spending, is driving the push for greater value in health care. Previous studies demonstrate overuse of a narrow set of services, suggesting provider inefficiency, but existing studies neither quantify inefficiency more broadly nor assess its variation across physician organizations (POs). Data and Methods: We used data on quality of care and total cost of care from 129 California POs participating in a statewide value-based pay-for-performance program. We estimated a production function with quality as the output and cost as the input, using a stochastic frontier model, to develop a measure of relative efficiency for each PO. To validate the efficiency measure, we examined correlations of PO efficiency estimates with indicators representing overuse of services. Results: The estimated production function showed that PO quality was positively associated with costs, although there were diminishing marginal returns to spending. A certain minimum level of spending was associated with high quality even among efficient POs. Most strikingly, however, POs had substantial variation in efficiency, producing widely differing levels of quality for the same cost. Conclusions: Differences among POs in the efficiency with which they produce quality suggest opportunities for improvements in care delivery that increase quality without increasing spending. Abstract : Supplemental Digital Content is available in the text.