CAN DATA ENVELOPMENT ANALYSIS PROVIDE A SCALAR INDEX OF ‘VALUE’?

ABSTRACT The concept of ‘value’ typically includes a combination of cost and quality measures. Some approaches to incorporating value into payment systems treat cost and quality as separate dimensions, but policymakers have expressed interest in a single scalar index that combines cost and quality. Treating risk‐adjusted cost as an input and multiple measures of quality as outputs, we examine whether data envelopment analysis input efficiency is associated with higher quality and lower cost in a sample of physician practices using 2008 US Medicare claims data from Colorado. The findings suggest that input efficiency might provide a useful scalar measure of value for a value‐based payment system for physician services. Copyright © 2013 John Wiley & Sons, Ltd.