Efficiency-gain targets punish trusts for spending on quality

The government's approach to efficiency gains penalises trusts for investing in quality and forces them into unproductive firefighting measures, says a report commissioned by the Department of Health.

The study by York University's Centre for Health Economics criticises the government's cost-efficiency targets introduced in 1999 with the express purpose of giving quality some influence over financial targets, for being too short term and even superfluous.

And it flags up widespread ignorance among trust finance directors about how the systems work.

Authors studied data from 200 trusts over six years, from 1994-95 to 1999-2000, and interviewed finance directors. They say trusts can no longer meet cost-efficiency targets by reducing length of stay and emergency admissions.

Instead trusts are releasing cash through 'fire-fighting'measures - freezing posts, cutting nursing costs and temporary bed closures.

Such short-term measures could produce no more than 1 per cent savings. Meanwhile, longer-term changes in service delivery could not deliver cost-efficiency gains in time to meet annual targets.

Interviews with finance directors revealed that the new system is poorly understood and may be superfluous since trusts are already required to stay within budget. Trusts did not understand why and how their individual targets were set as they appeared unrelated to their performance or to national and regional targets.

Finance directors were, with one exception, unaware that the new system incorporated quality. The report says: 'In all other trusts, interviewers had to outline the new system to the trust finance directors and agreed to send additional information.'

The unanimous view of all those interviewed was that 'the existing approach to measuring shortterm efficiency gain was likely to penalise trusts that invest in quality-improvement initiatives at the expense of activity'. All wanted a way of taking into account quality improvements that cost money.

Research fellow Rowena Jacobs, one of the report's authors, said: 'We need a new measure to take account of quality, which may be cost-increasing.Technically speaking it is taken into account. The department says, 'Yes, we do take quality into account', but the point that emerged from trust level was that very few of them were aware of it. It is still not productive to be taking quality into account.'

Over the six-year data period, researchers could find no reduction in unit costs for acute trusts as a whole and no reduction in variations between trust's unit costs. Ms Jacobs said the report had been 'well received' by the DoH's efficiency targets implementation working group.

Institute of Health Management chief executive Stuart Marples said: 'These targets had their day long ago so I am not surprised that this report has been so critical of them.

'My criticisms would be exactly the same. They encourage the use of crude cost controls on things like vacancy factors, recruitment freezes and reduced training budgets which save money in the short term but can be very harmful to long-term sensible strategy.'

NHS Confederation policy director Nigel Edwards said: 'It is always nice to have one's prejudices confirmed by research. It shows what many people have long believed: that efficiency savings are not efficiency savings but cost-cutting at the expense of quality.

paul. stephenson@emap. com

Hospital Efficiency Targets: a report for the Department of Health . Centre for Health Economics, University of York. 01904-434259.