Reliability and Validity in Hospital Case-Mix Measurement

There is widespread interest in the development of a measure of hospital output. This paper describes the problem of measuring the expected cost of the mix of inpatient cases treated in a hospital (hospital case-mix) and a general approach to its solution. The solution is based on a set of homogeneous groups of patients, defined by a patient classification system, and a set of estimated relative cost weights corresponding to the patient categories. This approach is applied to develop a summary measure of the expected relative costliness of the mix of Medicare patients treated in 5,576 participating hospitals. The Medicare case-mix index is evaluated by estimating a hospital average cost function. This provides a direct test of the hypothesis that the relationship between Medicare case-mix and Medicare cost per case is proportional. The cost function analysis also provides a means of simulating the effects of classification error on our estimate of this relationship. Our results indicate that this general approach to measuring hospital case-mix provides a valid and robust measure of the expected cost of a hospital's case-mix.