OBJECTIVES: To evaluate the effect of purchaser mix, market competition, and trust status on hospital productivity within the NHS internal market. METHODS: Hospital cost and activity data were taken from routinely collected data for acute NHS hospitals in England for 1991-2 to 1993-4. Cross sectional and longitudinal regression methods were used to estimate the effect of trust status, competition, and purchaser mix on average hospital costs per inpatient, after adjusting for outpatient activity levels, casemix, teaching activity, regional salary variation, hospital size, scale of activity, and scope of cases treated. RESULTS: Real productivity gains were apparent across the study period for NHS hospitals on average. Casemix adjustment drastically improved cross sectional comparisons between hospitals. Gaining trust status and increasing host district purchaser share were associated with productivity increases after adjustment for casemix, regional salary differences, and hospital size and scope. Hospitals that became trusts during the study period were on average less productive at the beginning of the period than those that did not, and there were no significant productivity differences between trust waves at the end of the period in 1993-4. Market concentration was not associated with productivity differences. CONCLUSION: Further analysis is needed to determine whether overall and trust associated productivity gains are transient effects, one off shifts, or self perpetuating reorientations of organisational behaviour. Hospitals may have chosen to become trusts because they anticipated being able to increase productivity. Increases in the proportions of small purchasers were associated with increasing costs. Importantly, this study could not adjust for changes in the quality of care.
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