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

In order to encourage performance improvements, the English government has set targets for acute hospitals to reduce their unit costs. Targets are based on analysis of costs across all acute hospitals. This policy has parallels with that of 'yardstick competition', advocated as a means to encourage efficiency in industries that lack competitive pressures. However, the prospect of cost improvements may not be realised in England. Firstly, there are insufficient incentives to respond appropriately to the provision of comparative cost information. Secondly, there is more than one index purporting to measure relative hospital costs. As comparison of unit costs is highly dependent on the measurement technique adopted, caution should be exercised when setting performance targets.