Developing new approaches to measuring NHS outputs and productivity

8 September 2005 (revised 2 December)

In March 2004 the Department of Health commissioned a research team from the Centre for Health Economics at the University of York and the National Institute for Economic and Social Research to develop new approaches to measuring NHS outputs and productivity. The research objectives were development of:

A comprehensive measure of NHS outputs and productivity

Methods to facilitate regular in-year analysis of NHS productivity

Output measures capable of measuring efficiency and productivity at subnational levels.

The research team was also asked to co-operate with The Atkinson Review on measurement of government output and productivity for the national accounts. Three interim reports on this research were produced (July 2004, November 2004 and June 2005) as well as memoranda on data requirements (September 2004) and methodology (January 2005, August 2005). The work was presented for scrutiny at two workshops (7 July 2004 and 17 June 2005). The research team presented work in progress to four meetings of the NHS Outputs Steering Group (7 July 2004, 2 February 2005, 10 May 2005, 20 July 2005). This is the Final Report on the research project. The background to the research remit referred to the Public Service Agreement (PSA) following the 2002 Spending Review that 'set a Ôvalue for money' (productivity) target of 2%'.

The target required information on quality improvement that had not previously been measured for the NHS as a whole. While PSA targets have changed over time, it is likely that some measure of quality improvement will continue to be required in reporting performance. Quality adjusted measures of NHS output were also required for other Department of Health purposes such as monitoring the performance of Trusts and identifying the scope for efficiency gains. It is important to appreciate that there are significant differences between the concepts 8 of efficiency, value for money, productivity and productivity growth that have implications for both methods of measurement and policy relevance of the resulting indices.

Efficiency is measured as the ratio of output produced with given inputs relative to the maximum feasible output.

'Value for money' reflects the value individuals/society place on output relative to the costs of production. This often corresponds to a cost-benefit analysis.

Productivity is the ratio of a measure of total output to a measure of total inputs.

Productivity growth is the change in output relative to the change in inputs. It is often interpreted as reflecting the effect of technical change on production. Robust measurement requires precise definition of the concept to be measured. Effective employment of these measures in pursuit of policy objectives requires selection of the appropriate measure for the issue at hand.