A new method of measuring efficiency shows the reforms of the early 1990s had a minimal effect on individual hospitals' productivity. Bruce Hollingsworth and colleagues explain

There are concerns in most western countries over the substantial growth in healthcare costs, and the UK government is placing increasing emphasis on efficiency and its measurement. But there is still little indication of how this will be done.

Many attempts have been made at measuring efficiency in health services, and in the NHS in particular, including performance indicators, the NHS efficiency indexes and the labour productivity index. But none of these is a measure of efficiency based on a robust economic methodology. As a result of this and other documented problems most measures have been unpopular and impractical.

New methodology Recently a new method, based on solid economic theory and methods has been developed - data envelopment analysis (DEA), a practical measure with almost 100 published applications in healthcare.

1 Although these have mostly been in the US, work is starting in the NHS, where previous attempts to undertake such research have been dismissed as too complex to explain.

This myth has been dispelled recently with measures based on DEA being shown to be potentially much more useful than those currently available to the NHS.

2 The results of the DEA-based measures are easy to explain in terms of the production of healthcare, and relate inputs to outputs from this process (see box, right).

Not just costs The measure does not have to be based on costs and can include physical measures of inputs (such as staff numbers) and output (such as patient episodes or bed days). The measure is not one of (supposed) absolute efficiency like previous NHS efficiency measures, but of efficiency relative to the other healthcare units in the sample.

Another more recent advance has been the use of DEA to look at the change in efficiency over time - productivity.

To analyse the impact of the NHS reforms of 1991-96 we measured the productivity of 75 acute hospitals in Scotland.

3 Impact of the 1991-96 reforms We found a slowdown in productivity in the first year following the reforms - 1991-92 - but progress in productivity in the years 1992-96. Overall, there is a small net gain in productivity of about 7 per cent.

We examined whether this change was due to technical change or efficiency change. Technical change measures the performance of the most efficient providers in the sample in each period. Such providers map out a 'boundary' of efficient production in each period.

Technical change measures whether the boundary of efficient production is progressing, regressing or staying constant over time. Efficiency change reflects the performance of individual hospitals relative to the boundary of efficient production. It shows whether individual hospitals, from one period to the next, catch up with, fall away from or remain the same distance from the boundary of efficient production.

Our results showed that productivity over the five-year period was dominated by overall technical change, rather than changes in individual hospital efficiency.

That is to say the efficient level of production improved over time while individual hospitals' efficiency did not change by much. The acute hospitals studied were already operating relatively efficiently when the reforms were introduced. In fact, in terms of individual hospital efficiency, there was a small decrease in efficiency over the last four years of the period.

We also adjusted the analysis for quality of care using standardised survival rates following admission for stroke, fractured neck of femur and myocardial infarction.

The results are similar overall compared with those drawn only from volumes of output, although smaller in size at around 2 per cent.

But results adjusted for quality of care show a different trend with productivity, increasing in the first year and then decreasing over the next four years. This implies that gains in volume of services may have been at the expense of quality of care, which may have been due to disruption from the reforms and subsequent pressure to increase productivity in terms of volume of services.

One-off gains Our results support the argument that incentives for increasing efficiency at hospital level have a one-off impact, rather than any steady impact over time, and that changes in technology rather than hospital efficiency drive healthcare expenditure.

Hospitals were operating relatively efficiently at the start of the reforms, and it is the shift in the efficient level of production which caused the overall changes in productivity.

Based on this evidence, the reforms did increase productivity, but only to a small extent - around 7 per cent when only volume of service is analysed, falling to 2 per cent over the whole period when adjusted for quality of care.

There were also large variations in the efficiencies of some individual hospitals in the sample. Further study will give a better insight into factors affecting performance. All of this suggests there is still scope for improvement. This is important and timely given the recent government policy focus on efficiency in the NHS. Analysis like ours would be useful across all NHS hospitals as it produces much more information on efficiency than measures currently in use and, we believe, those under consideration.

Key points

An analysis of the activity of 75 acute hospitals over the period 1991-96 using data envelopment analysis shows that, while overall productivity increased, the efficiency of individual hospitals did not.

A small decrease in the efficiency of individual hospitals was found in the last four years studied.

An analysis of quality of care over the same period suggests that gains in volume of services may have been at the expense of quality of care.

The results suggest that incentives for increasing hospital efficiency have a one-off impact rather than a sustained effect.


1 Hollingsworth B, Dawson P, Maniadakis N. Efficiency measurement of healthcare: a review of non-parametric methods and applications.

Health Care Management Science 1999; 3: 161-172.

2 Hollingsworth B, Parkin D. Developing efficiency measures for use in the NHS. Report to the NHS Executive Northern and Yorkshire R&D Directorate , No. 502073, 1998.

3 Maniadakis N, Hollingsworth B, Thanassoulis E. The impact of the internal market on hospital efficiency, productivity and service quality. Health Care Management Science 1999; 2: 75-85.

Dr Bruce Hollingsworth is health economics research associate, health economics group, Newcastle University. Dr Nikos Maniadakis is research fellow, health economics research centre, Oxford University. Emmanuel Thanassoulis is professor of business studies, business school, Aston University.