NHS hospitals in the North of England are performing better on the new star ratings system than those in the South.
According to new research from the Centre for Market and Public Organisation (CMPO), based at the University of Bristol, the explanation lies in regional differences in the gap between wages in the private and public sectors.
Their analysis indicates that hospitals in areas where nurses are paid relatively well compared with the private sector score higher on a range of performance targets. This suggests that allowing hospital managers to raise pay in parts of the country where it is relatively low may be a way to improve NHS performance
As part of its efforts to increase productivity in health care, in 2001, the government introduced a rating system that measures the performance of NHS hospitals against a wide range of targets, including aspects of quality, volume and financial performance. To sharpen incentives further, the government has linked performance on these star ratings to the degrees of freedom to be given to hospital managers.
So why should there be a regional pattern to the star ratings with hospitals in the North performing better on average than those in the South? It cannot be due to differences in the health of the population since, in general, this is better in the South than the North. The research suggests that differences in pay between hospitals located in high costs areas – basically the South – and those located in low cost areas – basically the North – are a key factor driving the differences in star ratings.
Pay in the NHS is still primarily set centrally. Hospitals in London and the South East pay more than hospitals located elsewhere. All other hospitals pay the same amount to staff at a given grade and experience.
But wages in the private sector are not fixed in this way. They reflect the state of the local economy. Areas of high demand for labour will have high private sector wages; areas with low demand will have low private sector wages. And since the pay differences between regions within the NHS do not fully reflect these private sector wage differentials, the differential between NHS pay and private sector pay varies considerably across the country. Hospitals in high cost areas are likely to pay less compared with the private sector than hospitals in low cost areas.
This means that hospitals located in high cost areas – those where wages outside the NHS are high – face more competition for staff than hospitals located in low cost areas. Low relative pay can lead to two possible shortages: staff and quality. It can cause problems in hiring and retention, which can affect productivity and quality.
Nurses are key staff in the NHS. The research examines whether the gap between what nurses are paid and what they might earn outside the NHS has an impact on the star ratings – a measure of the quality – of NHS hospitals. Unpacking the star ratings into their separate components reveals that hospitals located in areas where the outside options for nurses are good have poorer outcomes in several areas: