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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
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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.
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Financial Resource Allocation ›
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
 
 
‹ Principles of health economics
including: the notions of scarcity,
supply and demand, distinctions
between need and demand,
opportunity cost, discounting, time
horizons, margins, efficiency and
equity
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