BEVAN SETTING TARGETS FOR HEALTH CARE PERFORMANCE 1 SETTING TARGETS FOR HEALTH CARE PERFORMANCE: LESSONS FROM A CASE STUDY OF THE ENGLISH NHS Gwyn Bevan* This paper examines problems of setting targets for health care performance in which the centre sets a uniform set of targets and levels of performance. The case study examined by the paper is from the system of performance assessment of ‘star ratings’ that was introduced from 2001 by the Department of Health to give each organisation in the NHS in England a single summary score from zero rating to three stars. Star ratings were directed at holding trusts’ chief executives to account for the local delivery of national priorities through a process of ‘naming and shaming’, in which Chief Executives of zero-rated organisations were at risk of losing their jobs. This paper outlines the underlying model and its three underlying assumptions: the centre can determine a scoring system to prioritise what matters; failures of performance that are not reflected in the scoring system do not matter; and the advantages of a system of scoring on accountable targets outweigh the disadvantages of various types of gaming responses. This paper examines the application of the model of star ratings to a case study of Primary Care Trusts (PCTs), which are complex organisations with three diverse sets of responsibilities: delivering primary care, commissioning secondary care, and supervising public health. It outlines an alternative model and the issues this raises for governance of health care performance. Keywords: Performance assessment; Targets; National Health Service; Regulation JEL classifications: H11; H83; I18 *Department of Operational Research, London School of Economics and Political Science, e-mail: R.G.Bevan@lse.ac.uk. This is a revised version of a paper presented at the eleventh meeting of the European Health Policy Group, September 2005, University of Perugia and the fourth NIESR Public Service Performance Conference, January 2006, British Academy. I am grateful for comments from Tessa Crilly, Nicholas Mays and Philip Stevens. Introduction In virtually all developed countries, whatever insurance and ownership arrangements are in place, most expenditure on health care is publicly financed. 1 Although most health care is not a public good, as Arrow’s seminal paper argued (Arrow, 1963), it is an exemplar of market failure. This means that there are good economic arguments for the UK’s insurance arrangements in which universal coverage is financed by general taxation and services are free at the point of delivery. 2 There is, however, an economic issue over whether publicly-financed health care ought to be delivered through publicly-owned services, and more generally how to generate appropriate incentives in a system that has a complex mix of principal/ agent problems (Evans, 1987; McGuire et al., 1987; Propper, 1995; Tuohy, 2003). The Thatcher Government sought to introduce incentives for efficiency by reforming the NHS from a four tiered state-hierarchical system (national/regional/district/ providers), in which there was a state monopoly of providers of secondary care and their incomes were determined by incremental budgeting, to an ‘internal market’, in which there was pluralism of, and competition between, providers of secondary care, and their income was determined by ‘money following the patient’ (Secretaries of State for Health, Wales, Northern Ireland and Scotland, 1989; Bevan and Robinson, 2005). These reforms separated ‘purchasers’ (districts) from secondary care providers (which became independent NHS trusts), created new ‘purchasers’ (with various forms of General Practitioner fundholding), and destroyed an effective hierarchy through emasculation of the regional tier. 3 As Tuohy (1999a and 1999b) argued, however, the design of the ‘internal market’ was in conflict with the logic of the NHS, which was determined by two key structural elements: clinical decision-making through collegial relationships by doctors (in general practice and hospital) meant that Districts as ‘purchasers’ lacked property rights over decisions on the supply of health care; and Ministerial accountability for local failures in provision meant that they constrained the effects of market-oriented reforms so that providers were not put at risk of failure. The ‘New’ Labour Government, elected in the UK in May 1997, famously sought a ‘third way’ as an alternative to monolithic centralised planning or a minimal state reliant