COST-EFFECTIVENESS AND COST CONTAINMENT

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COST-EFFECTIVENESS AND COST CONTAINMENT

A Physician’s Primer

Ralph 0. Bischof, MD, and David B. Nash, MD, MBA

Cost-effectiveness and cost containment in medicine are complex and controversial topics. As our health care system evolves, medical care is consuming an ever-increasing portion of the Gross Domestic Product. Al- though advances in medical technology and health care delivery are im- perative, there is increasing pressure to contain or at least slow the associated rapidly escalating cost of health care. As physicians, we must direct our attention to these issues and increase our involvement before non- physicians assume control of our profession.

This article looks at the basic issues of cost-effectiveness and cost containment. This material slowly has diffused into the general medical literature, yet practicing physicians are barraged by advertising, studies, and other information concerning these topics. Clinicians in primary care need to know what cost-effectiveness is and understand its applications in health care; primary care is at the forefront of the health care reform movement. The objective of this article is to give the clinician with no previous background an overview of this area and its literature. This is accomplished by a discussion of major concepts, literature review, and a glossary of basic terminology. The clinician should gain a fundamental understanding of these principles that provides a basis for applying them in the everyday practice of primary care.

This article is supported in part by Grant 2D15E53013, Public Health Service Grants for Faculty Development in Family Medicine.

From the Department of Family Medicine (ROB) and the Office of Health Policy and Clinical Outcomes (ROB, DBN), Jefferson Medical College of Thomas Jefferson University, Phil- adelphia, Pennsylvania

PRIMARY CARE

VOLUME 23 *NUMBER 1 *MARCH 1996 115

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COST AND CHARGES

The distinction between cost and charges is key in any economic analysis. A charge is the amount of money that a health care provider asks or bills for a particular service. Cost is the actual amount of money that a health care provider uses in providing a particular service. Charges may have little resemblance to cost, and these terms should not be used inter- changeably. Finkler8 discusses the importance of this distinction.

To complicate things further, there are many different types of costs. One group of costs includes economic, accounting, and marginal costs. Economic cost is the amount paid for the resources consumed in providing a service. Accounting cost includes the economic cost plus a fraction of the costs necessary to run that particular health care organization. Mar- ginal cost is the cost of only the additional resources consumed by providing one additional unit of service. For example, the marginal cost to provide one additional chest radiograph is the cost of only the radiographic film. The economic cost includes the cost of the film plus a portion of the cost of the developing solution, a portion of the cost of the machinery, and a portion of the radiology technician’s salary. The accounting cost could include adjusted portions of all the costs involved in running the hospital, such as a portion of the maintenance and security departments’ costs. As one can imagine, the methods for calculating, for example, how much of the maintenance department’s costs are allocated to that one additional chest radiograph are very complicated and vary from institution to institution.

An important related concept is that of cost and revenue centers. The maintenance department is a cost center, for example. It does not charge patients directly for its services, but its services are necessary to run other departments, such as the radiology department. Somehow, the cost of running the maintenance department must be paid. This is done by di- viding and adding a portion of the maintenance department’s costs to the charges of each of the revenue centers, such as the radiology department, which directly charges patients for the services it provides.

These concepts of costs and charges help to explain why patients (and clinicians) are often confused by medical bills. Hospital bills in particular can be complicated and appear to be nonsensical. The charge for a specific item listed on a bill reflects much more than the price that the hospital originally paid for that item. For example, a bill may show a charge of $20 for an ice pack. The hospital may have purchased the ice pack for 25 cents, but the remaining $19.75 reflects a portion of the overhead expenses, such as the costs of running the security and maintenance departments. A different hospital may charge $2 or $40 for the same ice pack, depending on their specific method of allocating the cost center and overhead expenses.

The same type of reasoning applies to the daily charge for a hospital bed. How can 1 day in a hospital bed cost $1000, exclusive of any medication or treatment? Patients need to know that it is not because the sheets are made of gold thread! The bed charge includes similar overhead items, such as the cost of providing nursing care, a portion of the interest pay-

COST-EFFECTIVENESS AND COST CONTAINMENT 117

ment on the bond that funded the hospital's construction, administrative costs, and a portion of the expense of treating patients who do not pay their bills or cannot afford to pay them. Clinicians can ease patient anxi- eties by explaining these basic concepts in simple terms.

Another distinction is that of fixed and variable costs. Fixed costs are those costs that do not change by the volume of services provided. For example, the cost of the radiographic machinery and the maintenance department's costs are not affected by the difference between doing 50 or 60 radiographs on a given day. Variable costs do change with the volume of services and do include, for example, the cost of radiographic film.

Costs can also be classified as direct, indirect, and intangible. Direct costs are those that are incurred in providing a medical intervention, such as those discussed previously in the radiology and maintenance department examples. Indirect costs are those not directly a result of the medical intervention. These include the loss of time from work and the loss of an active, fully functioning member of society and the family. Intangible costs are factors such as quality of life, which we discuss later. To avoid confusion among these, it may be best to use actual resource consumption as a measure of cost in an economic analysis. Finklers and Eisenberg7 discuss the different types of costs in detail.

ECONOMIES OF SCALE

Another important concept is economies of scale. This concept as- sumes that a greater volume of a given service results in lower costs. Some costs are fixed, such as the equipment needed to provide the service, so that greater volume results in these costs being spread out over a greater number of service units.

Because of the lower cost associated with a larger volume of services, some hospitals with a lower volume may be forced to provide the service at less than cost to be competitive with a larger volume hospital. This practice of lowering charges to be competitive with a higher volume provider, even at a financial loss, is called consensus pricing. Any such losses, it is hoped, are offset by profits in providing other services.

Another issue is the regionalization of tertiary care. Does every com- munity hospital need to have MR imaging or the most recent cardiac surgery technology, or is it more cost-effective (and even produce better clinical outcomes) to regionalize these services? This is much debated and studied. Studies of economic issues, such as the regionalization of tertiary care, can be hindered by confusion created among the concepts discussed previously, such as the different types of costs, the use of charges instead of costs, and consensus pricing. Uniformity among economic studies would help, but often is lacking.

The American public expects quick and easy access to the latest technology, but this increases the costs of medical care dramatically. Often patients hear of the latest medical developments through the news media. Many patients then expect or demand this type of care at their next visit to the physician. They do so, however, without an understanding of

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whether the new development is medically appropriate for their situation or even whether it has been approved as safe and effective. Patients and providers need to understand that resources are limited and that there are more considerations to medical care than receiving the latest technology on demand in their own backyard.

COST-EFFECTIVENESS

The term cost-effective has been used in many ways and contexts, sometimes leading to ambiguity. Cost-effectiveness analysis has two major meanings. One is as a generic term for economic analysis of the benefits or outcomes of a health care intervention. This includes cost-utility and cost-benefit analyses. In contrast, cost containment is focused on minimizing total costs. It does not directly consider effectiveness or benefit, although efforts to reduce costs imply at least a crude estimation of these in deciding which costs to cut.

Another use of the term cost-effectiveness analysis is for a specific type of economic analysis that measures benefits in clinical terms, such as number of deaths prevented or number of cancers detected. Doubilet et a14 discuss the use of the term cost-effective and suggest less frequent and more precise use. They suggest that the term should include both costs and benefits and the trade-offs between them.

Cost-benefit analysis assigns a dollar value to the clinical outcome or benefit achieved and compares this with the cost of achieving that outcome. Cost-utility analysis examines the cost to achieve an extra unit of clinical outcome in terms of quality and quantity of life, such as quality- adjusted life years. Cost-minimization analysis involves situations where clinical outcomes are equal, and the emphasis is on cost comparison. In this respect, cost-minimization is very similar to cost containment.

Cost-minimization is the simplest of these analyses. The quality and outcomes in this instance are equal among the different alternatives being compared. A clinical example is making a choice between a generic medication and the corresponding brand-name drug. In the situation of aspirin, the clinician may decide that there is little difference among the different manufacturers’ products and that the outcome or end result for the patient is the same. In this case, cost-minimization analysis focuses on a comparison of the costs of each brand of aspirin. The clinician (or phar- macist, by default) simply chooses the lowest cost aspirin for the patient’s prescription. The situation may be different for a thyroid hormone sup- plement. The physician may know that the bioavailability is much better for the brand name drug than for the generic equivalent. In this case, cost- minimization may not be appropriate. The physician needs to weigh the bioavailability problem in the analysis. If the bioavailability problem leads to different clinical outcomes between the brands, a simple comparison of costs is not appropriate.

Cost-effectiveness analysis is being used to estimate the benefits and costs of medical treatments and interventions; however, its use in setting priorities for treatments is contr~versial.~,~ In situations of limited re-


sources, priorities should in principle be determined by cost-effectiveness analyses; however, current methods and data for cost-effectiveness analyses often involve crude measures of benefit and costs. This in turn may lead to misinterpretation and debate. Clinical outcomes are very important in these analyses, but this area is still in its infancy. Many of the interventions in medical care lack good outcomes studies to allow ade- quate evaluation of their effectiveness. Although many outcomes studies are forthcoming, they often are complex and costly to complete. Cost- effectiveness analyses provide valuable information, but they may be limited by their underlying assumptions and data and by the perspectives of the people critiquing them.

Certain nonmethodologic problems may forestall successful implementation of cost-effectiveness analysis. Eddy5f6 illustrates the clinical problem of counterintuitiveness. His example compares high-dose chemotherapy and autologous bone marrow transplantation (HDC/ABMT) for metastatic breast cancer with cervical cancer screening. The scenario involves a public health officer with a $5 million budget to spend and a choice between these two activities. This money could prevent 140 cervical cancer deaths by screening or cure two women of breast cancer by using the money for HDC/ABMT.

Although the difference appears clear on paper, the challenge re- mains for the clinician. Suppose you have two patients. Mrs. Smith is 38 years old, with metastatic breast cancer, and she is a candidate for HDC/ ABMT. Mrs. Jones is 20 years old, with the possibility of contracting cervical cancer sometime in the future and is asking about having a Papani- colaou test. Imagine that you can treat only one of these women. Which one do you treat? This situation appears much different from the perspective of the practitioner than from the perspective of the public health officer. This example illustrates one of the problems in implementing cost- effectiveness analysis in setting priorities for treatment. It also illustrates the problem of identifiable victims, which is discussed later.

Many publications discuss the different types of economic analysis in more detail. Bootman et a12 present an extensive discussion in the context of pharmacoeconomics. Jolicoeur et all5 present a concise guide to pharmacoeconomic analysis. Eisenberg7 and Detsky and Naglie3 present excellent concise guides to clinical economic analysis. StiegZ1 discusses cost-effectiveness in the treatment of pain. Both cost-effectiveness and clinical effectiveness are analyzed by Gulati and Bennett" in a study of granulocyte-macrophage colony-stimulating factor in patients with relapsed Hodgkin's disease. Finley9 discusses factors to be considered in a cost-effectiveness analysis, using hematopoietic growth factor therapy as an example. Readers may wish to refer to specific publications that are of interest.

An understanding of the terminology of cost-effectiveness helps the clinician make sense of the frequent use and misuse of the terms in the literature and in medical advertising. It also allows the clinician to help answer patients' questions spurred by the growing use of the terms in news media coverage of health care issues.

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QUALITY OF LIFE

Quality of life is an important factor in assessing any clinical outcome and effectiveness. Quality of life attempts to measure the levels of economic, political, social, physical, and psychological well-being resulting from a given disease or intervention. In cancer-related studies it is used in conjunction with traditional end points in cancer clinical trials, such as survival and tumor response.

Many elements can be included in a quality-of-life assessment. These include the ability to work, to produce income, the level of physical and mental activity, happiness, and perceptions of self-worth and the value of life. As one might surmise, there is little agreement about exactly which elements to include and with what emphasis. A basic perspective on quality of life is summed up by the World Health Organization definition of health as ”a state of complete physical, mental, and social well-being and not merely the absence of disease or infirmity.”22 This definition may be the origin of the concept of quality of life.18

Schuessler and Fisherz0 wrote that quality of life assessment began in the 1960s with the Report of the President’s Commission on National Goals in the United States. Since then, a wealth of quality-of-life studies and assessment instruments have been published. Mosteller and Faloti~o-Taylor’~ present a detailed look at quality of life, and Barofsky and Sugarbaker’ discuss applications in cancer. Quality-adjusted life-years are used to apply quality-of-life assessment in economic analyses and are well sum- marized by LaPuma and Law10r.I~

The concept of quality of life is a familiar one to physicians, who daily help patients with a wide range of functional status and severity of illness. It also adds another important dimension to economic studies of the treatments we prescribe for patients.

PERSPECTIVES

Any cost-effectiveness analysis can be interpreted in many different ways depending on from whose perspective one is looking. The patient, the provider, the payer, and society all have different perspectives. The patient focuses on the best possible treatment for his or her condition. His or her perspective also is influenced by whether he or she pays the charges out of pocket or whether a third party pays the charges. The third party payer or insurance carrier focuses on the charges it allows. The provider, such as a hospital, focuses on the actual costs of providing the service, irrespective of the charges. The cost to society is the loss of the patient’s productivity and the expenses involved in giving the treatment. Society loses the opportunity to use these resources for some other purpose. It is important for the physician to understand these different perspectives.

Physicians are in a unique position. They serve as agents of their patients, as representatives of the health care system, and also as active members of society. Each of these has a stake in the health care delivery system, and each expects the physician to act on his or her behalf. It may be of benefit to look at clinical decisions from each of these different per-


spectives. Unfortunately, there is no simple and easy method to balance these different perspectives. An awareness of them is at least a step in the right direction. Although there may not be a simple reconciliation to the ethical dilemmas that arise, the physician, as the principal decision maker, should be aware of and consider these different perspectives.

Analyses that are used to decide the allocation of limited resources illustrate the important clinical issue of identifiable victims. For example, one might need to weigh the 1 in 10 chance of saving a patient with a particular advanced cancer by definitive treatment against the 1 in 1000 people that would be saved by early detection and treatment using a screening test for that cancer. Aside from other considerations, identifiable lives are almost always favored. Most people feel differently about the one identified victim of a cancer than they do about the unidentified 1 person in 1000 that will be saved at some time in the future.

A cost-effectiveness analysis must also be considered in its proper clinical context. For example, a study could look at the cost savings by switching from an antibiotic dosed every 6 hours to one dosed every 12 hours. Assume equal clinical outcomes. The twice-daily drug may cost more per day than the four times a day drug, but it theoretically could reduce the nursing and pharmacy time needed to prepare and administer the treatment. The analysis of drug cost and savings of staff time may show the twice-daily drug to be more cost-effective. In the context of day- to-day hospital operations, however, do the minutes of time saved by the nurse and the pharmacy actually result in cost savings through less staff hours worked or more effective patient care? Or do the minutes of time saved end up as time for an extra cup of coffee or a discussion of last night's baseball game? Unless the time savings are substantial, the staff may end up working the same number and length of shifts, while additional money is being spent on the more expensive drug. This example illustrates the importance of viewing analyses in the proper context.

Different perspectives should always be considered by clinicians in their decision making and in reading the cost-effectiveness literature. These studies may not always consider different perspectives and should always be considered in a proper context. Clinicians also need to be aware of their unique roles in medical decision making. We have the unique opportunity and responsibility to consider the different perspectives of all stakeholders each time we make a clinical decision. The impact of decisions made in the clinician-patient relationship extends far beyond the confines of this dyad and the examining room. A further discussion of perspectives is presented by Eisenberg7 in an excellent clinical economics article.

ONDANSETRON: AN EXAMPLE OF COST-EFFECTIVENESS ANALYSIS

The principles of cost-effectiveness analysis can be applied to the drug ondansetr~n.'~ Ondansetron is the first of a new group of antiemetic drugs that have superior efficacy in preventing acute chemotherapy- induced nausea and vomiting and fewer side effects than traditional anti-

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emetic therapies. It has rapidly gained widespread popularity in many hospitals; however, it costs approximately 10 times as much as traditional antiemetic therapies, such as phenothiazines and metoclopramide, raising concerns about its costs to hospitals and the health care system. Issues surrounding the increasing use of ondansetron include whether all chemotherapy patients should receive it and if guidelines should be estab- lished to reserve its use for highly emetogenic treatments and for patients with poor responses to traditional antiemetic therapy.

It is interesting to look at ondansetron from different perspectives. From the patient’s perspective, it is preferable to use only ondansetron and not risk potentially greater discomfort with traditional therapies. Maximizing quality of life is the key issue for the patient. Nursing and house staff prefer ondansetron to avoid extra patient care, clean-ups and complications from nausea and vomiting. Third party payers who cover the ondansetron treatment prefer the less expensive traditional therapies. Society and hospitals that are receiving a predetermined capped amount for each patient case prefer a trial of less expensive therapy. The key ques- tion, however, is whether the extra expense can be offset by potential savings from shorter duration of hospital stay, decreased staff time in patient care, and fewer complications resulting from the lower incidence and severity of nausea and vomiting and fewer side effects with ondansetron.

Johnson et all3 performed a pharmacoeconomic analysis to look at these issues surrounding the use of ondansetron. Eight hundred fifty ad- missions for cancer chemotherapy at an academic medical center were analyzed. The study concluded that the average length of hospital stay was shorter for patients who received ondansetron rather than standard antiemetic therapy, but that average hospital costs were not significantly different. The reduced hospitalization costs offset the higher acquisition cost of ondansetron.

QUALITY

A thorough discussion of cost-effectiveness and cost containment is incomplete without at least mentioning the issue of quality. Cost-effectiveness and cost containment go hand-in-hand with quality.

Quality and quality management techniques are inherent in any process or procedure. These topics have only recently received significant formal attention in health care, but have been playing an important role in industry for some time. Quality implies conformance to requirements or standards that maximize the effectiveness or use of a product or process.

Several terms are used frequently. Quality control refers to quality measurement of a specific product or item. Quality assurance applies quality techniques to processes themselves, in addition to the actual products. Continuous quality improvement refers to a constant cycle of continuing im- provements. Total quality management is a philosophy of quality based on the elimination of variation and improvement of the actual processes leading to results. Clinical outcomes attempt to measure the quality of the


results of a clinical intervention. There are numerous variations of these techniques and themes.

Processes are at least as important as the product or health care intervention itself. For example, a physician may recommend that a particular patient obtain a mammogram. There are many events in the overall mammogram process, however, that may prevent the mammogram from getting done. The patient may not have heard the physician, the patient may not remember, a referral may not have been written, the insurance may not cover it, the patient may have a tacit fear of radiation from the mammogram, the patient may not have access to transportation, the patient may be afraid of discovering cancer, and so forth. Although the physician may be expecting the mammogram report automatically to appear on his or her desk in a week, the many steps and factors in the process may result otherwise. Process can impede the best and most conscientious intentions of the provider; it must be considered in any quality improvement effort.

One result of the growing attention to quality in health care is the proliferation of clinical practice guidelines. These guidelines attempt to translate and simplify medical knowledge into decisions and algorithms for specific medical problems. Although many guidelines have been developed, their diffusion into daily clinical use has been substantially slower. Hadorn et all2 discuss some of the issues surrounding clinical practice guidelines and present a new approach to their development. Kritchevsky and Simmons16 discuss continuous quality improvement, quality in general, and applications for physician care. The challenge of quality in health care is presented by Goldfield and Nash.lo Although guidelines are often viewed by clinicians as distasteful "cookbook medicine, they will gradually play a larger role in clinical practice.

Programs that focus on quality have been known by many names. Whatever the name of the currently popular program may be, quality will always remain at the heart of health care. The emphasis on quality needs to be reinforced as cost containment and cost-effectiveness move into the spotlight.

SUMMARY

This article presents the basic concepts and issues of cost-effectiveness and cost containment in the context of primary care. Examples of how these concepts apply to daily clinical practice are used for illustration. The glossary of terms and review of the literature provide a convenient reference. It is hoped that this guide provides a beginning step to allow physicians to become more knowledgeable and enthusiastic participants in cost-effectiveness and cost containment efforts.

Glossary

This glossary of the terminology used in the areas of cost-effectiveness and cost containment provides the reader with a resource for quick reference and review.

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Accounting Cost The cost for a particular service that includes economic cost or the cost of the resources consumed, plus a fraction of the costs necessary to run that particular health care operation. This can also be considered a ”break- even” cost.

Break-Even Analysis An analysis to derive a level of revenue that equals the costs of providing a service. This process is of importance in setting charges.

Charges The amount of money charged for a particular service. Although often confused or equated erroneously with costs, charges may be very different than costs and may be arrived at through complex processes. Charges may also be called list prices.

Clinical Outcomes A measure of the quality of a clinical intervention’s results. Clinical Practice Guidelines Guidelines that attempt to translate medical knowl-

edge into simpler decisions and algorithms for specific medical problems. Consensus Pricing A practice where the charge for a particular service is the same

at several different hospitals or providers in a given geographic area. One or more providers may actually be losing money on providing the service because they do a much smaller volume per year (see Economics of Scale). If these smaller volume providers charged more, however, they could lose busi- ness because the higher volume providers deliver the same service at a lower price while still being profitable.

Continuous Quality Improvement A constant cycle of continuing quality im- provements.

Cost The monetary value of the resources consumed by a provider in providing a particular service.

Cost-Benefit Analysis Economic analysis of the cost to achieve an extra unit of clinical outcome in terms of an assigned dollar value of that outcome or benefit.

Cost Center A department that does not charge patients directly for the services it provides to the health care facility; that is, a nonrevenue producing department. For example, a maintenance department, which is necessary to run a hospital, but has no direct interaction with patients.

Cost Containment An effort to minimize costs without necessarily considering effectiveness, benefit, or quality.

Cost-Effectiveness Analysis This term has two uses. One is as a broad term de- scribing general economic analysis of a health care intervention. This includes cost-effectiveness, cost-utility, and cost-benefit analyses. It also describes a specific type of economic and benefit analysis that measures clinical outcomes in terms of units, such as number of deaths prevented or life years gained. An example is the number of dollars expended per cancer detected for a particular screening test.

Cost-Minimization Analysis An analysis that is performed when the clinical outcomes of two or more interventions are equal. This is a simplified economic analysis that focuses on the cost differences between interventions, such as two different antibiotics for a particular infection. This method is not com- monly used, however, because it is unusual to find clinical outcomes that are exactly the same for two different medical interventions.

Cost-Utility Analysis An economic analysis expressed as the cost to achieve an extra unit of clinical outcome in terms that reflect the quality and quantity of life. For example, quality-adjusted life-years, years of life saved, or length of hospital stay.

Direct Costs These are costs incurred by the health care system and patient by the implementation of a medical intervention. These include actual costs of the medication, health care facility, personnel involved, and transportation to the facility.

Economic Cost The price paid by an organization for the resources consumed in providing a given service.


Economies of Scale The assumption that greater volume leads to greater econ- omy. Some costs are fixed, so that a larger volume of services results in the same costs being divided over a greater number of service units. For example, two hospitals may need to purchase the same amount of equipment to perform a particular surgical procedure. If one hospital does a much larger number of such procedures, however, its costs may be substantially less per patient, because the cost of equipment was spread out over a larger number of procedures.

Efficiency Achievement of the maximal increase in health benefit. Sometimes this is standardized to the increment of health benefit per fixed amount of resources, such as when a fixed amount of resources is available to achieve a goal.

Fixed Costs Costs that are not changed in the short term by the volume of services provided, such as the overhead for maintaining a building, equipment, and staff.

Indirect Costs Costs incurred as a result of a medical intervention but not directly related to the intervention. This includes time lost from work, compensation for sick time, and costs incurred by the family as a result of an absent or debilitated member.

Intangible Costs & Benefits Another way of expressing quality of life. Just in Time A method of minimizing product and supply inventories by order-

ing materials as close as possible to the actual time of need. This reduces the cost of maintaining inventories of expensive items, such as the newer bio- technology drugs. Precise timing and reliability of suppliers are essential for this technique to work effectively.

Marginal Cost The extra amount of resources consumed to provide an additional unit of service. For example, the additional cost of doing 51 chest radiographs instead of 50 radiographs on a given day.

Pharmacoeconomic Analysis Cost-effectiveness analysis specifically applied to pharmaceuticals.

Quality-Adjusted Life-Years A method of measuring the quality and length of survival. This technique attempts to quantify the differences among survival in good health versus surviving in varying degrees of pain and disability. These entities are intangible and there are many different techniques and opinions on how to measure them.

Quality Assurance Quality control applied to the actual processes that lead to results or a product.

Quality Control Conformance to particular requirements or standards, usually applied to a specific product or item.

Quality of Life Any assessment of a medical intervention should consider the quality of life following the intervention. This includes factors such as chronic pain and its severity, the ability to ambulate and perform activities of daily living, and side effects of medication. One should also consider the quality- of-life effects on family members and the surrounding social structure, such as the care necessary for a debilitated patient and the psychological effects on the family.

Revenue Center A department that directly provides a service to a patient and charges the patient for the service, thereby producing revenue. For example, the laboratory that charges a patient for performing a cholesterol test.

Sensitivity Analysis A method for testing the stability of an economic analysis over a range of estimates and assumptions. This technique takes into consid- eration the uncertainties in estimating costs and utilities.

Total Quality Management A philosophy of quality based on the elimination of variation and improvement of the actual processes leading to results. This process was developed by W. Edwards Deming and was embraced by post-

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World War I1 Japan. In the mid-1980s American hospitals began to adapt total quality management to health care.

Variable Costs Those costs that vary with the volume of services provided. For example, the amount of radiograph film, developer, and contrast material used in a radiology department.

References

1. Barofsky I, Sugarbaker PH: Cancer. In Spilker B (ed): Quality of Life Assessments in

2. Bootman JL, Townsend RJ, McGhan WF Principles of Pharmacoeconomics. Cincinnati,

3. Detsky AS, Naglie IG: A clinician’s guide to cost-effectiveness analysis. Ann Intern Med

4. Doubilet P, Weinstein MC, McNeil BJ: Use and misuse of the term “cost effective” in

5. Eddy DM: Cost-effectiveness analysis; Is it up to the task? JAMA 2673342-3348, 1992 6. Eddy DM: Cost-effectiveness analysis; Will it be accepted? JAMA 268:132-136, 1992 7. Eisenberg JM: Clinical economics: A guide to the economic analysis of clinical practices.

8. Finkler SA: The distinction between cost and charges. Ann Intern Med 96:102-109, 1982 9. Finley RS: Measuring the cost-effectiveness of hematopoietic growth factor therapy. Can-

cer 672727-2730,1991 10. Goldfield N, Nash DB (eds): Providing Quality Care: The Challenge to Clinicians. Phil-

adelphia, American College of Physicians, 1990 11. Gulati SC, Bennett CL: Granulocyte-macrophage colony-stimulating factor (GM-CSF) as

adjunct therapy in relapsed Hodgkin’s disease. Ann Intern Med 116:177-182,1992 12. Hadorn DC, McCormick K, Diokno A: An annotated algorithm approach to clinical

guideline development. JAMA 2673311-3314,1992 13. Johnson NE, Nash DB, Carpenter CE, Sistek CJ: Ondansetron; costs and resource utili-

zation in a US teaching hospital setting. PharmacoEconomics 3:471481, 1993 14. Johnson NE, Nash DB, Sistek CJ: Ondansetron: Early experience and outcomes at a

university hospital. Pharmacy and Therapeutics 171534-1543,1992 15. Jolicoeur LM, Jones-Grizzle AJ, Boyer JG: Guidelines for performing a pharmacoecon-

omic analysis. Am J Hosp Pharm 49:1741-1747,1992 16. Kritchevsky SB, Simmons BP: Continuous Quality Improvement; concepts and appli-

cations for physician care. JAMA 266:1817-1823,1991 17. LaPuma J, Lawlor EF Quality-Adjusted Life-Years: Ethical implications for physicians

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21. Stieg RL: The cost-effectiveness of pain treatment: Who cares? Clin J Pain 6:301-304,1990 22. World Health Organization: Constitution of the World Health Organization. In Basic

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