Hospital efficiency targets

Cost‐efficiency targets, used to encourage downward pressure on hospital unit costs, have been employed within the UK NHS for many years. There has been considerable speculation that these targets create incentives to reduce beds and increase occupancy rates at the expense of holding spare capacity to accommodate fluctuations in emergency admissions. This research used panel data for the period 1994/1995–1999/2000, supplemented by a series of semi‐structured interviews, to explore the strategies Trusts employ to reduce unit costs. No relationship could be found between published targets and changes in unit costs, nor that targets were successful in reducing the dispersion of unit costs over time. Interviews revealed that efficiency gains required of Trusts, usually dictated by the local health economy, often bore no correspondence to the national or regional published targets. Results further indicated that contrary to prior speculation, Trusts divide into two distinct groups, those with high occupancy rates and those with a high proportion of free beds to accommodate emergencies, with Trust characteristics displaying stability over time. A pressing need for future work is the development of measures to encourage efficiency that take account of quality improvement. Copyright © 2002 John Wiley & Sons, Ltd.