Cost per service differentials in local health departments

An emerging issue in health care is the relative efficiency with which local health departments provide their services. The problem is complicated by the fact that many factors may contribute to variations in efficiency. We have developed a framework for analyzing such variations across departments, using cost per service (CPS) as the measure of efficiency. The approach is illustrated with data from all 82 county or district health departments in North Carolina. CPS levels can be differentially affected by selected uncontrollable characteristics of the serviced population. Thus, when used to evaluate departmental performance, or to determine reimbursement rates, the CPS must be adjusted for relevant exogenous factors. Our method of cluster analysis accounts "naturally" for these factors, thereby allowing for development of policy decisions more responsive to actual health department circumstances.