Truly Inefficient or Providing Better Quality of Care? Analysing the Relationship Between Risk-Adjusted Hospital Costs and Patients’ Health Outcomes

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

Research output: Working paperDiscussion paper


Accounting for variation in the quality of care is a major challenge for the assessment of hospital cost performance. Because data on patients’ health improvement are generally not available, existing studies have resorted to inherently incomplete outcome measures such as mortality or re-admission rates. This opens up the possibility that providers of high quality care are falsely deemed inefficient and vice versa.
This study makes use of a novel dataset of routinely collected patient-reported outcomes measures (PROMs) to i) assess 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.
Our results provide some evidence of a U-shaped relationship between risk-adjusted costs and outcomes for hip replacement surgery. For the other three investigated procedures, the estimated relationship is sensitive to the choice of PROM instrument. We do not observe substantial changes in estimates of cost performance when outcomes are explicitly accounted for.
Original languageEnglish
Place of PublicationYork, UK
PublisherCentre for Health Economics, University of York
Number of pages23
Publication statusPublished - Oct 2011

Publication series

NameCHE Research Paper
PublisherCentre for Health Economics, University of York


  • hospital costs
  • efficiency
  • patient outcomes
  • PROMs
  • cost-quality relationship
  • HESG Meeting

    Nils Gutacker (Participant)

    29 Jun 20111 Jul 2011

    Activity: Participating in or organising an eventConference participation

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