Consumer-directed healthcare reform models, such as health savings accounts with high deductibles, depend on giving consumers the information they need to select the providers best suited to their needs and pocketbooks. This requires transparency of cost and effectiveness. In addition, such models are designed to rewards providers with incentives for doing good work, such as "pay for performance."
This post is not focused on the debate about whether providers' performance should be evaluated. Rather, it addresses the issue of using insurance claims (administrative) data to evaluate provider effectiveness and improve the quality of care.
Claims data provide some useful measures of clinicians’ performance, including mortality rates, complications, and cost of care. These data are grossly inadequate metrics, however, for incentives, transparency of cost & effectiveness, and continuous quality improvement.
This is because claims data do not include information necessary to determine, for example, how much a patient improved after treatment, if errors were made, if lower cost treatments of equal or greater effectiveness could have been used, if the patient was educated adequately in self-care and complied with the prescribed plan of care, and if coexisting conditions affected results. Without such clinical outcomes data, it isn't possible to evaluate a provider's performance accurately nor gain the knowledge needed to improve healthcare effectiveness and efficiency.
So, instead of using claims data in isolation, they should be augmented with detailed clinical outcomes data that (a) offer more valid measures of performance, and (b) enable researchers to establish and evolve evidence-based practice guidelines.
For an in-depth technical discussion of these issues, see this WellnessWiki page.