Roberta Longo

Efficiency, heterogeneity and cost function analysis: empirical evidence from pathology services in the National Health Service in England

Pathology services are increasingly recognized as key to effective healthcare delivery – underpinning diagnosis, long-term disease management and research. To the extent that pathology services affect a patient’s treatment pathway, significant healthcare costs are influenced directly by the performance of these services. Given pressures on the UK Department of Health to make efficiency savings and that little is known about the efficiency of pathology laboratories, this area offers unlocked potential for efficiency gains. We adopt a time varying inefficiency model, with laboratory-specific time paths for inefficiency, to identify potential savings in pathology services based on a panel of 57 English laboratories over a 5 year period. We apply a range of approaches to account for observable and unobservable heterogeneity between laboratories. We find potential efficiency savings of 13% in pathology services in this sample, which implies the potential for an annual saving of £390m in pathology across the NHS. Our study also provides valuable insights into the impact of a range of factors influencing laboratory costs.

Hierarchical Performance and Unobservable Heterogeneity in Health: A Dual-Level Efficiency Approach Applied to NHS Pathology in England

Understanding the source of inefficiency within health system organisational structures is a key aspect of performance measurement and management; and is of increasing importance to policy makers. This study uses a unique panel dataset to study the efficiency performance of pathology services in the National Health Service (NHS) in England for the first time. We apply a dual-level stochastic frontier (DLSF) model (J Prod Anal 37(1):1–27, 2012) to isolate the source of inefficiency at two vertically distinct organisational levels: an upper level of Strategic Health Authorities (SHAs); and a lower level of laboratories grouped within SHAs. Wedevelop the DLSF framework—in line with recent developments in the wider panel data literature—to control for the influence unobserved heterogeneity, which is a key issue for healthcare performance analysis. We find statistically significant variation in inefficiency performance at both organisational levels in pathology services. Weuse these measures to compute overall inefficiency for NHS pathology services, and corresponding savings estimates. Finally we comment on the wider modelling implications of our research with respect to the separation of inefficiency and unobserved heterogeneity when applied to multi-level data structures.