Classification of hospitals based on measured output: the VA system

Evaluation of hospital performance and improvement of resource allocation in hospital systems require a method for classifying hospitals on the basis of their output. Previous approaches to hospital classification relied largely on input characteristics. The authors propose and apply a procedure for classifying hospitals into groups where within-group hospitals are similar with respect to output. Direct measures of case-mix-adjusted discharges and outpatient visits are the principal measures of patient care output; other measures capture training and research functions. The component measures were weighted, and a composite output measure was calculated for each of the 162 hospitals in the Veterans Administration health care system. The output score then was used as the dependent variable in an Automatic Interaction Detector analysis, which partitioned the 162 hospitals into 10 groups, accounting for 85 per cent of the variance in the dependent variable. An extension of the output classification method is presented for illustration of how the difference between hospitals' actual operating costs and costs predicted on the basis of output can be used in defining isoefficiency groups.