Assessing value in healthcare services

Healthcare Financial Management, July, 1999

Virtually everyone is interested in assessing value in the nation's economy. Making the best possible purchases with limited resources is the fundamental principle underlying the demand function in the U.S. economy.

Purchasers generally consider value to be a function of two variables: cost and quality. While most purchasers expect to pay higher prices for higher-quality goods and services, they also look for bargains.

Assessing quality, however, is difficult and subjective, even for tangible commodities such as automobiles and video cassette recorders. Consumer rating organizations and publications try to help purchasers by periodically reviewing and ranking products on a number of relevant scales. Quality can be an even more important dimension in service areas, especially in health care, but it is more difficult to measure for services.

Recently, the Center for Healthcare Industry Performance Studies (CHIPS) developed quality indicators for hospitals. Exhibit 1 shows data collected from 908 U.S. hospitals that performed coronary artery bypass surgery. (DRGs 106 and 107) in 1997. The measure of quality used is mortality, and the ratio shown is actual mortality compared with expected mortality. A ratio value greater than 1.0 implies a worse-than-expected mortality experience. The data are adjusted for severity and were derived from the MedPAR file, which includes all Medicare discharges in 1997.

Mortality is the only quality measure shown in Exhibit 1 because mortality is an objective measure. Data on complication rates are not shown because billing data, the source for most quality studies, may not always be complete with respect to complication codes when payment is not affected. The cost data in Exhibit 1 also are adjusted for severity and cost of living. Ratios show actual costs compared with expected costs.

These data show that volume is a powerful driver of both quality and cost. Hospitals with a higher volume of procedures have both lower mortality rates and lower costs. CHIPS, therefore, believes major purchasers of coronary artery bypass surgeries should seek hospitals at which a larger number of these procedures are performed.

For further information about this study or other quality-assessment studies, call CHIPS at (800) 859-2447, or visit the CHIPS Web site, www.chipsonline.com.