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(2004)ThesisThis thesis addresses questions of how to incorporate quality of care, represented by disutility-bearing effects such as mortality, morbidity and re-admission, in measuring relative performance of public hospitals. Currently, case-mix funding and performance, measured with costs per case-mix adjusted separation, hold hospitals accountable for costs, but not effects, of care, creating economic incentives for quality of care minimising cost per admission. To allow an appropriate trade-off between the value and cost of quality of care a correspondence is demonstrated between maximising net benefit and minimising costs plus decision makers’ value of disutility events, where effects of care can be represented by disutility events and hospitals face a common comparator. Applying this correspondence to performance measurement, frontier methods specifying disutility events as inputs are illustrated to have distinct advantages over output specifications, allowing estimation of: 1. economic efficiency conditional on the value of avoiding disutility events. 2. technical, scale and congestion sources of net benefit efficiency; 3. best practice peers over potential decision makers’ value of quality; and 4. industry shadow price of avoiding disutility events. The accountability this performance measurement framework provides for effects and cost of quality of care are also illustrated as the basis for moving from case-mix funding towards a funding mechanism based on maximising net benefit. Links to evidence-based medicine in health technology assessment are emphasised in illustrating application of the correspondence to comparison of multiple strategies in the cost-disutility plane, where radial properties as shown to provide distinct advantages over comparison in the cost-effectiveness plane. The identified performance measurement and funding framework allows policy makers to create economic incentives consistent with evidence-based medicine in practice, while avoiding incentives for cream-skimming and cost-shifting. The linear nature of the net benefit correspondence theorem allows simple inclusion of multiple effects of quality, whether expressed as not meeting a standard, functional limitation or disutility directly. In applying the net benefit correspondence theorem to hospitals a clinical activity level is suggested, to allow correspondence conditions to be robustly satisfied in identification of effects with decision analytic methods, adjustment for within DRG risk factors and data linkage to effects beyond separation.