Improving performance in public hospitals: a role for comparative costs?

Area of Science:

• Health Economics
• Public Policy
• Hospital Management

Background:

• The English government implemented cost-reduction targets for acute hospitals to drive performance improvements.
• This policy is analogous to 'yardstick competition,' a strategy used to enhance efficiency in non-competitive industries.

Purpose of the Study:

• To evaluate the potential effectiveness of government-set unit cost reduction targets for English acute hospitals.
• To identify factors that may impede the realization of anticipated cost improvements.

Main Methods:

• Analysis of the policy framework for setting acute hospital cost targets in England.
• Examination of the principles of 'yardstick competition' and its applicability to healthcare.
• Review of incentives and measurement methodologies for comparative cost analysis in hospitals.

Main Results:

• Incentives to act on comparative cost data appear insufficient for effective response.
• The existence of multiple, potentially conflicting, indices for measuring relative hospital costs complicates target setting.
• Unit cost comparisons are highly sensitive to the specific measurement techniques employed.

Conclusions:

• The effectiveness of current cost-reduction targets in English acute hospitals is questionable due to inadequate incentives.
• The variability in cost-measurement indices necessitates caution when establishing performance targets.
• Policy interventions should address both incentive structures and standardization of cost-measurement methodologies for greater impact.