ABSTRACT
This chapter outlines the main economic issues related to the use of comparative cost information for setting efficiency targets in the health sector. It describes the comparative cost data sets developed in the National Health Service (NHS) and presents the conflicting messages on relative performance generated by the data. The chapter discusses the use of the data in setting efficiency targets in the NHS, focusing on the importance of incentives for changing behaviour. It offers a summary of experience from outside the United Kingdom (UK). There is some experience from UK regulatory agencies operating in sectors other than health care that may be of relevance to the development of efficiency regulation for the hospital sector of the NHS. Hospital management could attempt to expand activity and increase market share or could decide not to expand, but to direct the surplus to increased quality or other activities that generate professional satisfaction.
