A cost-effectiveness framework for profiling the value of hospital care

Provider profiling and performance-based incentive programs have expanded in recent years but need a theoretical framework for measuring and comparing the "value'' of clinical care across medical providers. Cost-effectiveness analysis provides such a framework but has rarely been used outside of the treatment choice context. The authors present a profiling framework based on cost-effectiveness methods and illustrate their approach using data on in-hospital survival and the cost of care for a heart attack from a sample of Massachusetts hospitals during fiscal year 2003. They model each outcome using hierarchical models that allow performance to vary across hospitals as a function of a latent quality effect and an effect of case mix. They also estimate incremental outcomes by conditioning on each hospital's pair of random effects, using indirect standardization to estimate "expected'' outcomes, and then taking their difference. Incremental cost and effectiveness outcomes are combined using incremental net monetary benefits. Using cost-effectiveness methods to profile hospital "value'' permits the comparison of the benefit of a service relative to the cost using existing societal weights.