Skip to main page content
U.S. flag

An official website of the United States government

Dot gov

The .gov means it’s official.
Federal government websites often end in .gov or .mil. Before sharing sensitive information, make sure you’re on a federal government site.

Https

The site is secure.
The https:// ensures that you are connecting to the official website and that any information you provide is encrypted and transmitted securely.

Access keys NCBI Homepage MyNCBI Homepage Main Content Main Navigation
. 2017 Dec;55(12):1039-1045.
doi: 10.1097/MLR.0000000000000823.

What Role Does Efficiency Play in Understanding the Relationship Between Cost and Quality in Physician Organizations?

Susan M Paddock  1 , Cheryl L Damberg, Dolores Yanagihara, John L Adams, Lane Burgette, José J Escarce
Affiliations

What Role Does Efficiency Play in Understanding the Relationship Between Cost and Quality in Physician Organizations?

Susan M Paddock et al. Med Care. 2017 Dec.

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.

PubMed Disclaimer

Conflict of interest statement

Conflict of Interest: All authors state that there is no conflict of interest.

Figures

Figure 1
Figure 1
Illustration of inefficiency. Solid curved line represents the highest quality of care, q, achievable for a given cost. Open circles represent two providers with different costs, a and b, but having the same quality, q. The relative length of the dashed line versus the dotted line for each cost represents the inefficiency of providing quality q at the given cost
Figure 2
Figure 2
Efficient frontier for physician organizations, by physician organization size
Figure 3
Figure 3
Association of quality (vertical axis), cost (horizontal axis) and physician organization efficiency (plotting symbols)
See this image and copyright information in PMC

Similar articles

See all similar articles

References

    1. Burwell SM. Setting value-based payment goals--HHS efforts to improve U.S. health care. N Engl J Med. 2015 Mar 5;372(10):897–899. - PubMed
    1. 114th United States Congress. Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) Washington, DC: 2015. Public Law No: 114–10.
    1. State of California Office of the Patient Advocate. Medical Group Report Card for Commercial HMO Plan Members. 2016 Available at: http://reportcard.opa.ca.gov/rc/medicalgroupcounty.aspx.
    1. Weinick RM, Burns RM, Mehrotra A. Many emergency department visits could be managed at urgent care centers and retail clinics. Health Aff (Millwood) 2010 Sep;29(9):1630–1636. - PMC - PubMed
    1. Barnett ML, Linder JA. Antibiotic prescribing for adults with acute bronchitis in the United States, 1996–2010. JAMA. 2014 May 21;311(19):2020–2022. - PMC - PubMed

Publication types