Performance-based budgeting in the public sector: an illustration from the VA health care system

The Relationship between Costs and Quality in Veterans Health Administration Community Living Centers: An Analysis Using Longitudinal Data

OBJECTIVE

To examine the relationship between cost and quality in Veterans Health Administration (VA) nursing homes (called Community Living Centers, CLCs) using longitudinal data.

DATA SOURCES/STUDY SETTING

One hundred and thirty CLCs over 13 quarters (from FY2009 to FY2012) were studied. Costs, resident days, and resident severity (RUGs score) were obtained from the VA Managerial Cost Accounting System. Clinical quality measures were obtained from the Minimum Data Set, and resident-centered care (RCC) was measured using the Artifacts of Culture Change Tool.

STUDY DESIGN

We used a generalized estimating equation model with facilities included as fixed effects to examine the relationship between total cost and quality after controlling for resident days and severity. The model included linear and squared terms for all independent variables and interactions with resident days.

PRINCIPAL FINDINGS

With the exception of RCC, all other variables had a statistically significant relationship with total costs. For most poorer performing smaller facilities (lower size quartile), improvements in quality were associated with higher costs. For most larger facilities, improvements in quality were associated with lower costs.

CONCLUSIONS

The relationship between cost and quality depends on facility size and current level of performance.

Specialization and production cost efficiency: evidence from ambulatory surgery centers

In the U.S. health care sector, the economic logic of specialization as an organizing principle has come under active debate in recent years. An understudied case is that of ambulatory surgery centers (ASCs), which recently have become the dominant provider of specific surgical procedures. While the majority of ASCs focus on a single specialty, a growing number are diversifying to offer a wide range of surgical services. We take a multiple output cost function approach to an empirical investigation that compares production economies in single specialty ASCs with those in multispecialty ASCs. We applied generalized estimating equation techniques to a sample of Pennsylvania ASCs for the period 2004-2014, including 73 ASCs that specialized in gastrointestinal procedures and 60 ASCs that performed gastrointestinal as well as other specialty procedures. Results indicated that both types of ASC had small room for expansion. In simulation analysis, production of GI services in specialized ASCs had a cost advantage over joint production of GI with other specialty procedures. Our results provide support for the focused factory model of production in the ASC sector.

Patient cost-sharing and insurance arrangements are associated with hospital readmissions after abdominal surgery: Implications for access and quality health care

BACKGROUND

Readmission rates after operative procedures are used increasingly as a measure of hospital care quality. Patient access to care may influence readmission rates. The objective of this study was to determine the relationship between patient cost-sharing, insurance arrangements, and the risk of postoperative readmissions.

METHODS

Using the MarketScan Research Database (n = 121,002), we examined privately insured, nonelderly patients who underwent abdominal surgery in 2010. The main outcome measures were risk-adjusted unplanned readmissions within 7 days and 30 days of discharge. Odds of readmissions were compared with multivariable logistic regression models.

RESULTS

In adjusted models, $1,284 increase in patient out-of-pocket payments during index admission (a difference of one standard deviation) was associated with 19% decrease in the odds of 7-day readmission (odds ratio [OR] 0.81, 95% confidence interval [CI] 0.78-0.85) and 17% decrease in the odds of 30-day readmission (OR 0.83, 95% CI 0.81-0.86). Patients in the noncapitated point-of-service plans (OR 1.19, 95% CI 1.07-1.33), preferred provider organization plans (OR 1.11, 95% CI 1.03-1.19), and high-deductible plans (OR 1.12, 95% CI 1.00-1.26) were more likely to be readmitted within 30 days compared with patients in the capitated health maintenance organization and point-of-service plans.

CONCLUSION

Among privately insured, nonelderly patients, increased patient cost-sharing was associated with lower odds of 7-day and 30-day readmission after abdominal surgery. Insurance arrangements also were significantly associated with postoperative readmissions. Patient cost sharing and insurance arrangements need consideration in the provision of equitable access for quality care.

Measuring the relationship between costs and outcomes: the example of acute myocardial infarction in German hospitals

In this paper, we propose a methodological approach to measure the relationship between hospital costs and health outcomes. We propose to investigate the relationship for each condition or disease area by using patient-level data. We examine health outcomes as a function of costs and other patient-level variables by using the following: (1) two-stage residual inclusion with Murphy-Topel adjustment to address costs being endogenous to health outcomes, (2) random-effects models in both stages to correct for correlation between observation, and (3) Cox proportional hazard models in the second stage to ensure that the available information is exploited. To demonstrate its application, data on mortality following hospital treatment for acute myocardial infarction (AMI) from a large German sickness fund were used. Provider reimbursement was used as a proxy for treatment costs. We relied on the Ontario Acute Myocardial Infarction Mortality Prediction Rules as a disease-specific risk-adjustment instrument. A total of 12,284 patients with treatment for AMI in 2004-2006 were included. The results showed a reduction in hospital costs by €100 to increase the hazard of dying, that is, mortality, by 0.43%. The negative association between costs and mortality confirms that decreased resource input leads to worse outcomes for treatment after AMI.

Cost-effectiveness of open versus laparoscopic appendectomy: a multilevel approach with propensity score matching

OBJECTIVE

To compare postoperative complications and cost of treatment of laparoscopic (LA) versus open appendectomy (OA) and to identify the most cost-effective treatment method.

METHODS

Patients treated for appendectomy in US veterans health administration (VHA) hospitals in 2005 were included into our study. Direct medical cost and postoperative complications during hospitalization were used as outcomes. Propensity score matching was employed to adjust for baseline imbalances between treatment groups. It was adjusted for the severity of appendicitis, comorbidities according to Charlson Comorbidity Index, and demographic variables. 1:1 optimal matching with replacement was performed. Based on the matched samples, we estimated generalized linear mixed regression models for costs (gamma model) and postoperative complications (logit model). Besides patients' covariates, predictors of hospital resource use and quality of care at the hospital level were considered as explanatory variables.

RESULTS

The total study population comprised of 1,128 patients (370 LA, 758 OA) from 95 VHA hospitals. Type of appendectomy had a significant influence on total costs (P=0.005), with predicted costs for LA being 17.1% lower in comparison to OA (OA: 10,851 US$ [95%CI: 9,707 US$; 12,131 US$] vs. LA: 8,995 US$ [95%CI: 8,073 US$; 10,022 US$]). Differences in the predicted overall postoperative complication were not significant between LA and OA (P=0.6311). Severity of appendicitis had a significant impact on costs and postoperative complications.

CONCLUSION

Predicted costs for LA were 1,856 US$ lower than for OA while the postoperative complication rate did not differ significantly. Thus, LA is the treatment of choice from a provider's perspective.

Do associations between employee self-reported organizational assessments and attitudinal outcomes change over time? An analysis of four Veterans Health Administration surveys using structural equation modelling

This paper evaluates relationships between healthcare employees' perceptions of three hospital organizational constructs (Leadership, Support and Resources), and their assessment of two employee-related outcomes (employee satisfaction and retention) and two patient-related outcomes (patient satisfaction and quality of care). Using four all-employee surveys conducted by the Veterans Health Administration in the United States between 1997 and 2006, we examine the strength of these relationships and their changes over time. Exposure and outcome measures are employee-assessed in all the surveys. Because it can accommodate both latent and measured variables into the model, Structural Equation Modelling (SEM) is used to capture and quantify the relationship structure. The aim of the project is to identify possible intervention foci. The analyses revealed that employee-related outcomes are improved by increases in Leadership and Support, and, not surprisingly, the outcome variable of employee satisfaction reduced turnover intention. The employee assessed patient-related outcomes of satisfaction and quality of care were most improved by increases in Resources. Results also indicate that the three organizational constructs and the web of associations characterized by SEM underwent changes over the study period, perhaps in relation to changes in VHA policy emphases, changes in survey wording and other possible unmeasured factors.

Costs and quality of hospitals in different health care systems: a multi-level approach with propensity score matching

Cross-country comparisons of costs and quality between hospitals are often made at the macro level. The goal of this study was to explore methods to compare micro-level data from hospitals in different health care systems. To do so, we developed a multi-level framework in combination with a propensity score matching technique using similarly structured data for patients receiving treatment for acute myocardial infarction in German and US Veterans Health Administration hospitals. Our case study shows important differences in results between multi-level regressions based on matched and unmatched samples. We conclude that propensity score matching techniques are an appropriate way to deal with the usual baseline imbalances across the samples from different countries. Multi-level models are recommendable to consider the clustered structure of the data when patient-level data from different hospitals and health care systems are compared. The results provide an important justification for exploring new ways in performing health system comparisons.

The trade-off between costs and outcomes: the case of acute myocardial infarction

Objective

To investigate and to quantify the relationship between hospital costs and health outcomes for patients with acute myocardial infarction (AMI) in Veterans Health Administration (VHA) hospitals using individual-level data for costs and outcomes.

Data Sources

VHA administrative files for the fiscal years 2000–2006.

Study Design

Costs were defined as costs incurred during the index hospitalization for treatment of AMI. Mortality and readmission, assessed 1 year after the index hospitalization, were used as measures of clinical outcome. We examined health outcomes as a function of costs and other patient-level and hospital-level characteristics using a two-stage Cox proportional hazard model that accounted for competing risks within a multilevel framework. To control for patient comorbidities, we compiled a comprehensive list of comorbidities that have been found in other studies to affect mortality and readmissions.

Principal Findings

We found that costs were negatively associated with mortality and readmissions. Every U.S.$100 less spent is associated with a 0.63 percent increase in the hazard of dying and a 1.24 percent increase in the hazard to be readmitted conditional on not dying. This main finding remained unchanged after a number of sensitivity checks.

Conclusions

Our results suggest that there is a trade-off between costs and outcomes. The negative association between costs and mortality suggests that outcomes should be monitored closely when introducing cost-containment programs. Additional studies are needed to examine the cost–outcome relationship for conditions other than AMI to see whether our results are consistent.

What have we learned from the application of stochastic frontier analysis to U.S. hospitals?

This article focuses on the lessons learned from stochastic frontier analysis studies of U.S. hospitals, of which at least 27 have been published. A brief discussion of frontier techniques is provided, but a technical review of the literature is not included because overviews of estimation issues have been published recently. The primary focus is on the correlates of hospital inefficiency. In addition to examining the association of market pressures and hospital inefficiency, the authors also examined the relationship between inefficiency and hospital behavior (e.g., hospital exits) and inefficiency and other measures of hospital performance (e.g., outcome measures of quality). The authors found that consensus is emerging on the relationship of some factors to hospital efficiency; however, further research is needed to better understand others. The application of stochastic frontier analysis to specific policy issues is in its infancy; however, the methodology holds promise for being useful in certain contexts.

A web-based nutrition program reduces health care costs in employees with cardiac risk factors: before and after cost analysis

Background

Rising health insurance premiums represent a rapidly increasing burden on employer-sponsors of health insurance and their employees. Some employers have become proactive in managing health care costs by providing tools to encourage employees to directly manage their health and prevent disease. One example of such a tool is DASH for Health, an Internet-based nutrition and exercise behavior modification program. This program was offered as a free, opt-in benefit to US-based employees of the EMC Corporation.

Objective

The aim was to determine whether an employer-sponsored, Internet-based diet and exercise program has an effect on health care costs.

Methods

There were 15,237 total employees and spouses who were included in our analyses, of whom 1967 enrolled in the DASH for Health program (DASH participants). Using a retrospective, quasi-experimental design, study year health care costs among DASH participants and non-participants were compared, controlling for baseline year costs, risk, and demographic variables. The relationship between how often a subject visited the DASH website and health care costs also was examined. These relationships were examined among all study subjects and among a subgroup of 735 subjects with cardiovascular conditions (diabetes, hypertension, hyperlipidemia). Multiple linear regression analysis examined the relationship of program use to health care costs, comparing study year costs among DASH participants and non-participants and then examining the effects of increased website use on health care costs. Analyses were repeated among the cardiovascular condition subgroups.

Results

Overall, program use was not associated with changes in health care costs. However, among the cardiovascular risk study subjects, health care costs were US$827 lower, on average, during the study year (P= .05; t₇₂₉ = 1.95). Among 1028 program users, increased website use was significantly associated with lower health care costs among those who visited the website at least nine times during the study year (US$14 decrease per visit; P = .04; t₁₀₂₂ = 2.05), with annual savings highest among 80 program users with targeted conditions (US$55 decrease per visit; P < .001; t₇₄ = 2.71).

Conclusions

An employer-sponsored, Internet-based diet and exercise program shows promise as a low-cost benefit that contributes to lower health care costs among persons at higher risk for above-average health care costs and utilization.

Extreme makeover: Transformation of the veterans health care system

The veterans health care system administered by the U.S. Department of Veterans Affairs (VA) was established after World War I to provide health care for veterans who suffered from conditions related to their military service. It has grown to be the nation's largest integrated health care system. As the system grew, a number of factors contributed to its becoming increasingly dysfunctional. By the mid-1990s, VA health care was widely criticized for providing fragmented and disjointed care of unpredictable and irregular quality, which was expensive, difficult to access, and insensitive to individual needs. Between 1995 and 1999, the VA health care system was reengineered, focusing especially on management accountability, care coordination, quality improvement, resource allocation, and information management. Numerous systemic changes were implemented, producing dramatically improved quality, service, and operational efficiency. VA health care is now considered among the best in America, and the VA transformation is viewed as a model for health care reform.

The measurement of efficiency and productivity of health care delivery

The measurement of efficiency and productivity of health service delivery has become a small industry. This is a review of 317 published papers on frontier efficiency measurement. The techniques used are mainly based on non-parametric data envelopment analysis, but there is increasing use of parametric techniques, such as stochastic frontier analysis. Applications to hospitals and other health care organizations and areas are reviewed and summarised, and some meta-type analysis undertaken. Cautious conclusions are that public provision may be potentially more efficient than private, in certain settings. The paper also considers conceptualizations of efficiency, and points to dangers and opportunities in generating such information. Finally, some criteria for assessing the use and usefulness of efficiency studies are established, with a view to helping both researchers and those assessing whether or not to act upon published results.

Specialty and full-service hospitals: a comparative cost analysis

OBJECTIVE

To compare the costs of physician-owned cardiac, orthopedic, and surgical single specialty hospitals with those of full-service hospital competitors.

DATA SOURCES

The primary data sources are the Medicare Cost Reports for 1998-2004 and hospital inpatient discharge data for three of the states where single specialty hospitals are most prevalent, Texas, California, and Arizona. The latter were obtained from the Texas Department of State Health Services, the California Office of Statewide Health Planning and Development, and the Agency for Healthcare Research and Quality Healthcare Cost and Utilization Project. Additional data comes from the American Hospital Association Annual Survey Database.

STUDY DESIGN

We identified all physician-owned cardiac, orthopedic, and surgical specialty hospitals in these three states as well as all full-service acute care hospitals serving the same market areas, defined using Dartmouth Hospital Referral Regions. We estimated a hospital cost function using stochastic frontier regression analysis, and generated hospital specific inefficiency measures. Application of t-tests of significance compared the inefficiency measures of specialty hospitals with those of full-service hospitals to make general comparisons between these classes of hospitals.

PRINCIPAL FINDINGS

Results do not provide evidence that specialty hospitals are more efficient than the full-service hospitals with whom they compete. In particular, orthopedic and surgical specialty hospitals appear to have significantly higher levels of cost inefficiency. Cardiac hospitals, however, do not appear to be different from competitors in this respect.

CONCLUSIONS

Policymakers should not embrace the assumption that physician-owned specialty hospitals produce patient care more efficiently than their full-service hospital competitors.

The evolution of changes in primary care delivery underlying the Veterans Health Administration's quality transformation

OBJECTIVES

Suffering from waning demand, poor quality, and reform efforts enabling veterans to "vote with their feet" and leave, the Veterans Health Administration (VA) health care system transformed itself through a series of substantive changes. We examined the evolution of primary care changes underlying VA's transformation.

METHODS

We used 3 national organizational surveys from 1993, 1996, and 1999 that measured primary care organization, staffing, management, and resource sufficiency to evaluate changes in VA primary care delivery.

RESULTS

Only rudimentary primary care was in place in 1993. Primary care enrollment grew from 38% in 1993 to 45% in 1996, and to 95% in 1999 as VA adopted team structures and increased the assignment of patients to individual providers. Specialists initially staffed primary care until generalist physicians and nonphysican providers increased. Primary care-based quality improvement and authority expanded, and resource sufficiency (e.g., computers, space) grew. Provider notification of admissions and emergency department, urgent-care visit, and sub-specialty-consult results increased nearly 5 times.

CONCLUSIONS

Although VA's quality transformation had many underlying causes, investment in primary care development may have served as an essential substrate for many VA quality gains.

The Veterans Health Administration: an American success story?

The Veterans Health Administration (VHA) provides health care for U.S. military veterans. By the early 1990s, the VHA had a reputation for delivering limited, poor-quality care, which led to health care reforms. By 2000, the VHA had substantially improved in terms of numerous indicators of process quality, and some evidence shows that its overall performance now exceeds that of the rest of U.S. health care. Recently, however, the VHA has started to become a victim of its own success, with increased demands on the system raising concerns from some that access is becoming overly restricted and from others that its annual budget appropriations are becoming excessive. Nonetheless, the apparent turnaround in the VHA's performance offers encouragement that health care that is both financed and provided by the public sector can be an effective organizational form.