A Two-Stage Estimation of Hospital Quality Using Mortality Outcome Measures: An Application Using Hospital Administrative Data

This paper proposes a method of deriving a quality indicator for hospitals using mortality outcome measures. The method aggregates any number of mortality outcome measures observed over several years into a single indicator. We begin with the supposition that there exists an abstract quality index which drives all observed mortality outcomes in each hospital. This abstract quality index is not directly observable but manifested via the observed mortality outcomes, which we make use of to provide an estimate of the abstract quality index. The method is applied to a sample of heart disease episodes extracted from hospital administrative data from the state of Victoria, Australia. Using the quality estimates, we show that teaching hospitals and large regional hospitals provide higher quality of care than other hospitals and this superior performance is related to hospital size.