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Assessing Performance

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

In the National Health Service (NHS) there are different mechanisms and methods for assessing performance specific to different kinds of organisation.  These depend on whether they are health care providers or commissioners and what type they are, for example within providers, primary care, hospitals or other.  The performance management system has been developing and changing over time and in line with changing organisational structures, so it is not possible to give a full description here.  The current systems are, however, well described and accessible on NHS websites.


2.1 Assessing performance against goals

The USA-based Commonwealth Fund publishes occasional reports on the performance of health systems compared to that of the USA.  The 2014 report (Davis et al, 2014) assessed performance using 80 indicators, grouped into five dimensions: quality, access, efficiency, equity, and healthy lives.  High-quality care is defined as care that is effective (with an emphasis on prevention and chronic care), safe, coordinated, and patient-centred (with an emphasis on communication, continuity, feedback, engagement and patient preferences.)  Good access is defined as patients’ ability to obtain affordable care and timely attention.  An efficient system is described as seeking “to maximize the quality of care and outcomes given the resources committed, while ensuring that additional investments yield net value over time.”  An equitable health system is defined as “providing care that does not vary in quality because of personal characteristics such as gender, ethnicity, geographic location, and socioeconomic status.”  The healthy lives dimension is based on assertion that “The goal of a well-functioning health care system is to ensure that people lead long, healthy, and productive lives."

Using these indicators, the 2014 Commonwealth Fund produced rankings for 11 health systems in developed countries.  The UK was ranked overall first and the USA worst.

These goals and the methods used to measure the performance of systems against them have been strongly debated. But it demonstrates the importance of defining 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 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.


© David Parkin 2017