The impact of the internal market on hospital efficiency, productivity and service quality

In this paper we use nonparametric mathematical programming models to compute and decompose Malmquist indices of productivity and quality change, which are used to evaluate the reforms in the UK National Health Service in the early nineties. We focus on acute hospitals and we study them over the first five years of the reforms. The findings of the study indicate that there was a productivity slowdown in the first year after the reforms but productivity progress in the subsequent years and thus, overall there was a net gain in productivity over the entire period considered. Productivity trends were dominated by technical change rather than hospital relative efficiency changes, as hospitals were already largely relatively efficient at the time of the introduction of the reforms. In fact, over the last four years in the period studied there was small relative efficiency regress and this does not bear out the argument that the reforms would increase hospital efficiency. The productivity changes are similar when service quality is incorporated in the analysis but the magnitude of these changes diminishes. Quality of service followed different trends to productivity change and this may have been the price for the productivity gains achieved.