Hospital Productivity: How is it measured? What Does It Mean?
“The Minister of Health’s responses thus far to the report by Mani Maniparathy and released by the New Zealand Business
Roundtable (www.nzbr.org.nz) yesterday on productivity in public hospitals are a distraction from the public interest
questions that it raises”, according to former Health Funding Authority Chairman Dr Graham Scott. “I wonder if he
understands the data and the analysis, what it claims and what it does not.”
Dr Scott, who oversaw and wrote a foreword to the study, said “the motivation behind it was bring out from under the
covers of the Official Information Act basic data on two aspects of hospital performance – productivity and unit costs
of services. These are crucial inputs to evaluation of the value for money in these organisations and of the
effectiveness of current arrangements for funding and delivering services.
We were concerned at the lack of accessible and reliable data for researchers and the public on the performance of their
public hospitals. These data should be released from protection by the OIA, raised in quality and published routinely by
Statistics New Zealand. In the meantime Mani will be making the data available. Our study went deeper into the data than
an earlier Treasury study that showed that hospital efficiency fell 7.7% from 2001-2004 when it had been rising about 1%
in the preceding years. This aroused our initial interest in the subject. That study measured efficiency by comparing
the growth in costs after allowing for inflation with the volume of services produced. In our study we recalculate that
measure and extend it over two more years, which produced robust confirmation of that result and also showed that it
continued to fall.
That measure of efficiency was influenced by the salary increases in that period. So we also tracked the volume of
services produced, divided by the staff numbers employed, to remove the effect of the salary increases on the Treasury’s
measure of efficiency. This is what we are calling hospital productivity which is a standard measure of labour
productivity used by economists.
Hospital productivity is about the volume of services being produced per person employed. We’re not talking about how
hard doctors and nurses work. Productivity data are like taking a person’s temperature – it can tell you have a fever
but not what is causing it. This analysis poses important questions about the effectiveness of current policies for
funding, governance and management of hospitals – it doesn’t answer them.
The over-arching public policy questions Mani’s analysis poses are these: How are the rights of access to services for
the public from their hospitals going to be met now and in future, when there already waiting lists of qualified
patients, the population is growing and aging and future governments are not going to be able to keep increasing
expenditure at the rate the present government has been able to due to favourable economic circumstances that we will
not see again for a while? As the rate of growth of demand is going to exceed the rate of growth of funding, then the
hospitals are going to have to increase their productivity to meet service 2 obligations. The evidence is that in recent
years it has been decreasing. Is this evidence right and if so why has this happened?
Those of us outside the system have no access to the information that would support a careful diagnosis of the reasons
for these trends. It is worrying that the Minister of Health seems untroubled by these productivity and cost trends
where such a large portion (one fifth) of government spending is involved, particularly at a time of economic recession
when all government spending must surely be under scrutiny. Whoever is the next Minister of Finance will have good cause
to be worrying about them and so will the public if these trends continue”, Dr Scott said. “Some possible causes are:
•Data inadequacies •Unmeasured quality improvements •The way the professional teams are paid, deployed, trained,
managed and motivated •The way cases are managed •The quality, availability – or lack thereof - and scheduling of
facilities used by professionals •Excess administrative and governance burdens on frontline staff inherent in the DHB
model of administration •The shift to bulk population based funding from paying standard prices for services, which
coincides with the productivity deterioration. Aside from his ideological points the minister’s answers so far are –
with our comments in italics - that:
1. The Labour Party thinks raising salaries is positive. We would too if it is necessary for recruitment and retention,
but what is the connection he has in mind between salaries and the volume of service per person employed?
2. The Government has invested in primary health care and in hospital infrastructure. Great, this was needed, but if
these decisions have been made correctly we would expect to see productivity in hospitals going up not down.
3. We have more front line health professionals. Great, but why as you employed more of them, did their average output
decrease? Also in addition to more front line professionals you have employed a lot more back office administrators and
board members – what is their contribution to front line productivity? Maybe they are lowering it.
4. The report doesn’t look at quality improvement. Correct, and if there has been a quality improvement that offsets the
productivity decline that deserves applause, but where is the evidence that such large improvements in quality have been
made? An important dimension of quality is safety. What has been achieved so far in responding to the Health Services
and Disability Commissioner’s very critical reports in recent years on hospital safety?
5. More people are accessing health services. So they should be with 8.5% average annual increases in health spending
in recent years but what has this to do with productivity in hospitals? The important issue is the conditions of access.
In October 2007 70 people were on the Capital Coast waiting list who had qualified for treatment but had waited more
then 6 months. He cleared some of that by sending people to Australia for services – possibly from big business -, which
was the right thing to do, but what does it say about New Zealand hospital productivity?” 3
“It is most surprising that the Minister of Health has dismissed as “silly silly” a report that deepens and largely
verifies work done by government officials and brings it to the wider public,” said Dr Scott. “If he favours
transparency about hospital performance, something he might attend to is the quality and availability of the base data
needed to analyse value for money in our hospitals. These are inconsistent, often unreliable, in some cases not being
recorded at all, and are difficult to obtain. Some previously available data have been discontinued. Treasury and
Ministry of Health reports referred to in the study were only available through the Official Information Act,” said Dr
Roundtable executive director Roger Kerr said that “Some commentators have questioned the timing of the release of the
study. In fact it would have been available and released many months ago had the information been easier to obtain. The
Ministry insisted for a while on selling it to us in paper form that would have cost us thousands of dollars to enter
into a computer.
We had to appeal to the ombudsman to get the data released in computer readable form. The Business Round Table has been
drawing attention to the disturbing fall in productivity growth across the economy in the sectors measured by Statistics
New Zealand (essentially the business sector, accounting for around 73% of GDP). The study suggests that there are equal
grounds for concern in the health sector, which accounts for a further 8% of the economy,” said Roger Kerr.