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Controlling for quality in the hospital cost function

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Abstract

This paper explores the relationship between the cost and quality of hospital care from the perspective of applied microeconomics. It addresses both theoretical and practical complexities entailed in incorporating hospital quality into the estimation of hospital cost functions. That literature is extended with an empirical analysis that examines the use of 15 Patient Safety Indicators (PSIs) as measures of hospital quality. A total operating cost function is estimated on 2,848 observations from five states drawn from the period 2001 to 2007. In general, findings indicate that the PSIs are successful in capturing variation in hospital cost due to adverse patient safety events. Measures that rely on the aggregate number of adverse events summed over PSIs are found to be superior to risk-adjusted rates for individual PSIs. The marginal cost of an adverse event is estimated to be $22,413. The results contribute to a growing business case for inpatient safety in hospital services.

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Notes

  1. Following Bazzoli et al. [3], the five high technology services are transplant, open heart surgery, certified trauma center, positron emission tomography, and extracorporeal shock-wave lithrotriper.

  2. Data contained in the AHRQ State Inpatient Databases is applied to the observed rates in the risk-adjustment process.

  3. Application of the Belsley Kuh Welsch statistics [4] indicated that multicollinearity among the PSIs was not causing instability among their coefficients.

  4. Results of a fifth model (not shown) that entered unadjusted event rates produced results similar to those of Model 2.

  5. We used smearing estimators [14] for retransformation from the log scale to the raw scale in Eqs. 2 and 3, by multiplying predicted values by the mean of exponentiated residuals.

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Authors and Affiliations

  1. VA Center for Health Quality, Outcomes and Economic Research, Boston University School of Public Health, 200 Springs Road, Bedford, MA, 01730, USA

    Kathleen Carey

  2. VA Office of Productivity, Efficiency and Staffing, Boston University School of Public Health, 200 Springs Road, Bedford, MA, 01730, USA

    Theodore Stefos

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  1. Kathleen Carey
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  2. Theodore Stefos
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Correspondence to Kathleen Carey.

Additional information

This work received primary funding from the Agency for Healthcare Research and Quality Grant #R03-HS017495-01, and secondary funding from the Department of Veterans Affairs. The authors greatly appreciate the research assistance of Shibei Zhao, Chieh Jessie Chu and Mengyun Lin.

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Carey, K., Stefos, T. Controlling for quality in the hospital cost function. Health Care Manag Sci 14, 125–134 (2011). https://doi.org/10.1007/s10729-010-9142-7

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