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This paper proposes a method of deriving a quality indicator for hospitals using mortality outcome measures. The method aggregates any number of mortality outcomes into a single indicator via a two-stage procedure. In the first stage, mortality outcomes are risk-adjusted using a system of seemingly unrelated regression equations. These risk-adjusted mortality rates are then aggregated into a single quality indicator in the second stage via weighted least squares. This method addresses the dimensionality problem in measuring hospital quality, which is multifaceted in nature. In addition, our method also facilitates further analyses of determinants of hospital quality by allowing the resulting quality estimates be associated with hospital characteristics. 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 case-load volume. Copyright © 2009 John Wiley & Sons, Ltd.