Truly inefficient or providing better quality of care? Analysing the relationship between risk-adjusted hospital costs and patients' health outcome

Nils Gutacker*, Chris Bojke, Silvio Daidone, Nancy J. Devlin, David Parkin, Andrew Street

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review


Observed variation in hospital costs may be attributable to differences in patients' health outcomes. Previous studies have resorted to inherently incomplete outcome measures such as mortality or re-admission rates to assess this claim. This study makes use of a novel dataset of routinely collected patient-reported outcome measures (PROMs) linked to inpatient records to (i) access the degree to which cost variation is associated with variation in patients' health gain and (ii) explore how far judgement about hospital cost performance changes when health outcomes are accounted for. We use multilevel modelling to address the clustering of patients in providers and isolate unexplained cost variation. We find some evidence of a U-shaped relationship between risk-adjusted costs and outcomes for hip replacement surgery. For three other procedures (knee replacement, varicose vein and groin hernia surgery), the estimated relationship is sensitive to the choice of PROM instrument. We do not observe substantial changes in cost performance estimates when outcomes are explicitly accounted for.
Original languageEnglish
Pages (from-to)931-947
Number of pages17
JournalHealth Economics
Issue number8
Early online date10 Sept 2012
Publication statusPublished - 2012


  • cost-quality relationship
  • efficiency
  • hospital costs
  • patient-reported outcomes (PRO)

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