Managed care companies contend there is still waste in the healthcare system that should be eliminated. Healthcare providers argue that further cuts will reduce quality. Which side is right? In order to answer this question it is necessary to determine the threshold implicit in the corollary question: How far can we go in reducing healthcare expense without diminishing quality? A new variability based methodology is proposed that has the potential to determine the threshold at which cost reduction will negatively impact quality. Illustrations of its specific application are provided.
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