Figure 2.1 is entitled “A Typology of Efficiency in Health Care”. The figure is divided into three sections: Perspective, Outputs, and Type of efficiency. The section on perspective contains nested boxes. The largest box represents society as a whole. Within this box are two smaller boxes, one representing individuals and one representing health-care “firms”. Individuals are defined as the actual and potential consumers of health care. Health-care firms consist of providers, purchasers, and health plans. Providers, purchasers, and health plans are depicted in small overlapping boxes within the health-care firms box to indicate that there are not always clear distinctions between the three groups. The section on outputs is split into two categories: services and health outcomes, and examples of both are provided. Finally, the section on type of efficiency depicts three definitions of efficiency: technical, productive, and social. The figure illustrates arrows from technical efficiency to productive efficiency, and productive efficiency to social efficiency. The formal definition, opportunity (or benefit) from improved efficiency, and potential inefficiencies for each type of efficiency are provided. For example, technical efficiency is defined as “Outputs cannot be produced with less of some input.” The opportunity associated with improved technical efficiency is reduced waste. Examples of inefficiency from a technical perspective include excessive length of stay and expired drugs and IV fluids. Productive efficiency is defined as “Outputs cannot be produced at lower cost.” The opportunity associated with improved productive efficiency is saving money. Examples of inefficiency from the productive perspective include excessive cost per episode of care and using a PET scan versus standard imaging for an Alzheimer’s diagnosis. Social efficiency is defined as “No person can be made better off without making someone else worse off.” The opportunity associated with improved social efficiency is maximizing social value. Examples of inefficiency from the social perspective include implantation of a cardiac defibrillator in low-risk patients and having hospitals of the wrong scale and scope.
Figure V.1 shows the relationship between Medicare spending and quality of care by the state in 2004. The figure is a scatterplot with 51 datapoints, each representing a state (or the District of Columbia). Performance on a composite quality measure is displayed on the y-axis, with a scale ranging from 73 to 88 points. Annual spending per beneficiary in dollars is displayed on the x-axis, with a scale ranging from 4,000 dollars to 8,000 dollars. Each data point represents the quality and cost measures for a state. Quality of care scores are tightly distributed between 78 and 83 points, while spending ranges considerably from 4,500 dollars to 8,000 dollars. There is no apparent linear pattern to the data points and there are no outliers.