Chapter 1. Introduction

Health Care Efficiency Measures: Identification, Categorization, and Evaluation

The Institute of Medicine (IOM) outlined six aims for the 21st-century health system in Crossing the Quality Chasm: health care should be safe, effective, patient-centered, timely, efficient, and equitable.3 In a subsequent IOM report providing the basis for the National Healthcare Quality Report,4 a matrix is provided for categorizing quality measures in five of those domains. Efficiency was not included in the matrix because it was judged to fall outside of the scope of the Quality Report and because of the "considerable methodological and measurement issues involved."4

Since the publication of the IOM reports, there has been substantial progress in measuring and reporting progress in health care quality. The National Healthcare Quality Report and the National Healthcare Disparities Report present current performance in the areas of effectiveness, patient centeredness, safety, timeliness, and equity. Many other groups, such as accrediting bodies (NCQA, JCAHO), government agencies (AHRQ, CMS), public-private alliances (Leapfrog, AQA, National Quality Forum, AMA Physician Consortium for Performance Improvement), and various research groups have also made a great deal of progress in defining and measuring various domains of health care quality. The measurement of efficiency has lagged behind.

There are a variety of definitions of efficiency currently in use and these different meanings for the same word drive some of the confusion among stakeholders about the adequacy or desirability of alternative measures of efficiency. In the table below, we show some of the definitions that have been used.

Table 1. Definitions of efficiency

IOM (2001a)Avoiding waste, including waste of equipment, supplies, ideas, and energy.
Palmer & Torero, 1999Health care resources are being used to get the best value for money.
Economic theoryTechnical efficiency means that the same level of the output cannot be produced with fewer of the inputs.
Economic theoryProductive efficiency refers to the maximization of output for a given cost, or minimization of cost for a given output.
Economic theorySocial (or Pareto) efficiency exists when no one can be made better off without making someone else worse off.
AQAA measure of the relationship of the cost of care associated with a specific level of performance measured with respect to the other five IOM aims of quality.
GAOProviding and ordering a level of services that is sufficient to meet patients' health care needs, but not excessive, given a patient's health status.
MedPACUsing fewer inputs to get the same or better outcomes. Efficiency combines concepts of resource use and quality.

Although these definitions have elements in common, they are sufficiently different to contribute to confusion in constructing and evaluating proposed measures of efficiency. We define efficiency as the relationship between a specific product (output) of the health care system and the resources (inputs) used to create the product. This definition is by design general enough to include different types of outputs and inputs as well as different methods for describing the relationship between these two critical components. We developed a typology of efficiency measures, described in the next chapter, designed to facilitate a discussion among interested parties about what is being evaluated under the category of efficiency and whether the available data and methods support the construct.

Despite the methodological difficulties, it is important to improve the current state of knowledge in measuring health care efficiency. Providers, payers, purchasers, consumers, and regulators all could benefit from information on the value derived from spending additional money on health care. Health care spending has continued to increase rapidly, without a clear understanding of whether the spending is increasing the value of care delivered.5 Despite its importance, there has not been a systematic and rigorous process in place to improve efficiency measurement as there has been for other domains of quality. As a result, organizations have proceeded with separate ad-hoc measurement approaches.6 Purchasers, particularly large employers, have been demanding that health plans incorporate economic profiling into their products and information packages. However, there is little information currently available about the approaches each of these entities is taking.

Recognizing the importance of improving efficiency measurement, the Agency for Healthcare Research and Quality (AHRQ) has requested that the Southern California Evidence-Based Practice Center (EPC) develop a typology of efficiency measures and conduct a systematic review and analysis of available measures.

Page last reviewed April 2008
Internet Citation: Chapter 1. Introduction: Health Care Efficiency Measures: Identification, Categorization, and Evaluation. April 2008. Agency for Healthcare Research and Quality, Rockville, MD.