Developing New Approaches to Measuring NHS Outputs and Productivity Andrew Street Research team: Diane Dawson, Hugh Gravelle, Mary O’Mahony, Andrew Street, Martin Weale, Adriana Castelli, Rowena Jacobs, Paul Kind, Pete Loveridge, Stephen Martin, Philip Stevens, Lucy Stokes

Structure of talk 1.Define some terms 2.Describe conventional approach to measurement of NHS productivity for National Accounts 3.Specify improved productivity indices for NHS Value weighted output index Cost weighted output index 4.Estimate the cost weighted output index 5.Calculate productivity growth

Productivity, efficiency & welfare Production function Welfare indifference curve

Productivity growth Production function year t Production function year t+1 C D

2000 Blair’s announcement to increase NHS expenditure by 7% per annum for seven years Department of Health / Treasury need to demonstrate value for money Political Context

Total factor productivity growth 1.Construct index of output growth Measure of the change in the valuable things that the health system produces 2.Construct index of input growth Measure of the change in the quantity and quality of labour, intermediate and capital inputs

Challenges in measuring government output 1.The output of the public sector is often difficult to describe or measure. 2.It is difficult to measure the quality of public sector output. 3.There are no prices so we need to weight different outputs to aggregate them into a single index.

The Output=Input Convention Output is measured as public sector expenditure. Circular and self-justifying. Implies no productivity change. Reductions in expenditure because of technological improvements reduce “output”.

Direct Volume Measurement Method for 2006 EU National Accounts Output is the “quantity of health care received by patients … … in terms of completed treatments … … adjusted to allow for the qualities of the services provided” (Eurostat handbook 1995)

Simple indices

Value-weighted index

Cost-weighted index Improvements 1.Better definition of x for hospital activity – Healthcare Resource Groups 2.Improved coverage: from j=12 to j=2,060

Components of output index

Raw growth rates – hospital sector

Raw growth rates – non-hospital sector

Cost weighted output index (Laspeyres form) (1) NHS outputs in national accounts Drawbacks 2.Using costs as weights assumes Efficient allocation of resources Costs reflect social value 1.The NHS produces more than merely activities Need to include change in quality

Cost and health outcome weights

Quality Adjusted Life Years

QALYs - Technical Change

Quality Adjusted Life Years Probability of surviving treatment j at time t+1 Health status before treatment Discounted life expectancy: 1.5% Monetary value of a QALY: £30,000 Health status after treatment

Cost weighted activity index

30 day survival rates Changes in survival rates used to scale activity Improvements in survival represent increases in output

Waiting times … … can reduce patient welfare because : Patients dislike waiting Waiting may be detrimental to health

Output Growth: Total NHS

Numbers employed in NHS

Labour Input Growth: Total NHS

TFP Growth: Total NHS

Value for Money? 1. Technological implications of NICE guidance 2. Large salary increases – consultants and GPs now best paid in Europe - £600m + £1.2bn. 3. Staff re-grading - £500m. 4. Re-organisation rather restructuring of incentives.