Headlines: August 27th, 2004

University researchers say NHS hospitals in the North of England are performing better than those in the South under the star ratings system and that this can be explained by regional differences in the gap between public and private sector pay.Analysis by the Centre for Market and Public Organisation, based at the University of Bristol and released today indicates that hospitals in areas where nurses are paid relatively well compared with the private sector score higher on a range of performance targets.

The team says the performance differences cannot be explained by variation in the health of the population as, in general, this is better in the South than the North. Their research suggests that differences in pay between hospitals located in high cost areas in the South and those located in low cost areas in the North are a key factor driving the differences in star ratings.

To support this, the researchers say that pay in the NHS is still primarily set centrally, though 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. In the private sector, however, wages are not fixed in this way but reflect the state of the local economy. As the pay differences between regions within the NHS do not reflect private sector wage differentials, the gap between NHS pay and private sector pay varies considerably across the country.

This, the CMPO research says, means hospitals located in high cost areas, where wages outside the NHS are high, face more competition for staff than hospitals in low cost areas. As nurses are key staff in the NHS, the research focussed on what impact their relative pay had on the star ratings. They found that for the 2001 targets, the nurses’ pay gap was associated with 7 of the 21 targets, including four key targets – the number of patients waiting for an inpatient appointment, and measures of outpatient waiting, trolley waiting and hospital cleanliness. For the 2002 targets, the pay gap was associated with 11 out of the 37 targets.

The researchers say the results imply some of the performance of NHS hospitals may be less related to managerial ability than to the labour market in which the hospital is located. This means allowing managers to raise pay in areas where it is relatively low may be one way to improve the performance of the NHS. At the same time, they say, it means allowing the management of three star performers to take over failing hospitals may not necessarily be bringing in better managers but bringing in managers who have worked in areas where the quality of NHS staff is higher.

The study, ‘Star System: Explaining the Regional Divide in NHS Performance’ will be published in the autumn issue of the bulletin of the Centre for Market and Public Organisation.