Health Economics: 2 - Assessing Performance

Section 1 notes that the main criteria used in economics to judge allocations of resources are efficiency and equity. It also notes that that efficiency is defined with respect to the achievement of aims, one of which may be equity. The assessment
of performance in health care therefore depends on the aims that are assumed. Here we will briefly examine examples of:

• the definition of aims against which performance is to be measured;
• the assessment of efficiency from the perspective of economic theory; and
• how performance is assessed in the National Health Service (NHS) nationally.

2.1 Assessing performance against goals

The World Health Organization (WHO) has a large programme on the performance of health systems, which is outlined in detail at http://www.who.int/health-systems-performance. In this, the
WHO makes very strong assertions about what the aims of health systems should be and measures performance against these defined aims. It asserts that ‘the defining goal of a health system is to improve population health’ and that performance is
to be assessed with respect to both premature mortality and non-fatal health outcomes and with both the average level of population health and health inequalities. A second goal is ‘responsiveness’, by which is meant things other than health
improvements that people expect from health services including ‘respect for persons’ – respect for dignity, autonomy and confidentiality- and ‘client orientation’ - prompt attention to health needs, basic amenities, access to social support
networks and choice of care provider. Again measurement is of both average levels and inequalities in distribution. A third goal is fairness in financial contribution, measured both with respect to health – sick people should not pay an ‘excessive’
share of their income to get health care – and wealth - poor households should pay less towards the health system than rich households.

Using these goals, a series of performance indicators have been produced in each of these areas. By weighting these indicators, the WHO was able to produce a ranking of 190 health systems in 2000, from the best – France – to the worst –
Myanmar. The UK was at 18 and the USA at 37.

Both these goals and the methods used to measure the performance of systems against them have been strongly debated; the website above gives references to some of that debate. But this does demonstrate that it is necessary to define goals in order
to assess performance. Here we will restrict attention to the issue of efficiency as defined as in section 1. Equity is an equally important goal, but there is less agreement over its definition for measurement purposes; and other goals are
important, but are not directly dealt with by economics.

2.2 Assessment of the efficiency of health care providers

Definitions of efficiency in production of goods and services, such as those given in section 1, refer to this in terms of, for example, the ‘lowest possible cost for a given output’, and ‘the highest possible production from a given set of
resources’. The problem from a performance measurement perspective is that unless we have examined every possible way in which production can be undertaken, we cannot know this; the theoretically most efficient way to undertake economic activities
is not known. Instead, we can only observe the most efficient way that exists in the real world. Therefore, any performance assessment is essentially a comparison of providers against the best performer – a ‘best practice’ comparison.

For the same reason, it is difficult to obtain a single measure of efficiency. The complexity of real world definitions of output, resources and cost in health care mean that a cost per case, for example, may hide as much as it reveals in terms of
efficiency. As a result, performance assessment is usually on the basis of a set of indicators of efficiency, rather than a direct measure of it. For example, one indicator might be the occupancy rate of hospital beds; another might be the
average length of stay.

Overall measures of efficiency can be obtained using techniques that are based on production functions and cost functions, though whether or not these could be used in practice is debated (Hollingsworth and Peacock, 2008). Section 1
describes how production is viewed as a process that turns resource inputs into outputs, and how inputs can be measured in physical terms or in costs terms. A production function is a mathematical relationship between physical resource inputs
and outputs, so that it is possible to calculate from data on a given amount of each resource what the output will be. Similarly, a cost function enables calculation of the cost of a given amount of output. The form of these mathematical
relationships can be estimated from real world data on resources, outputs and costs from a sample of producers. Moreover, by examining differences between what is predicted for a particular producer and what it actually does, a measure of efficiency
can be obtained. Essentially, the prediction is based on the performance of the best producers – that is, it again uses a best practice comparison.

2.3 Assessment of performance in the NHS

The main body for assessing the performance of NHS organisations in the UK is the Healthcare Commission, which also looks at the private health care sector. Details of its work can be found on its website:

www.healthcarecommission.org.uk/

The Healthcare Commission has a wider role than assessing performance, which includes actions to change performance, but here we are only interested in how it assesses performance. It should be noted that the Healthcare Commission measures
performance against targets that are set by the government, rather than simply a best practice comparison amongst peers; though of course targets may be set by referring to best practice.

Performance assessment is carried out annually for all NHS trusts in England and is published by the Healthcare Commission. This process is called the ‘Annual health check of the NHS’. It assesses the performance of every NHS Trust in two
broad areas: the quality of services and the management of finance, which is also called ‘use of resources’.

Quality is assessed against targets in ‘core standards’ and ‘existing national targets’, according to whether these are ‘fully met’, ‘almost met’, ‘partly met’ and ‘not met’, and in ‘new national targets’ according to
whether these are currently ‘excellent’, ‘good’, ‘fair’ or weak. From this is calculated an overall quality score on the ‘excellent’ to ‘weak’ scale.

Assessment of financial management is assessed differently for Foundation and non-Foundation Trusts. Foundation Trusts (www.dh.gov.uk/en/Healthcare/Secondarycare/NHSfoundationtrust/index.htm)
are independent public corporations who have freedom from financial control by the NHS and the DH. They have their own regulator, Monitor, which assess financial performance. The financial performance of other Trusts is undertaken by the Audit
Commission. In both cases, performance is again measured on the ‘excellent’ to ‘weak’ scale

© David Parkin 2009