The role of the staff MFF in distributing NHS funding: Taking account of differences in local labour market conditions

The National Health Service (NHS) in England distributes substantial funds to health-care providers in different geographical areas to pay for the health care required by the populations they serve. The formulae that determine this distribution reflect populations' health needs and local differences in the prices of inputs. Labour is the most important input and area differences in the price of labour are measured by the Staff Market Forces Factor (MFF). This Staff MFF has been the subject of much debate. Though the Staff MFF has operated for almost 30 years this is the first academic paper to evaluate and test the theory and method that underpin the MFF. The theory underpinning the Staff MFF is the General Labour Market method. The analysis reported here reveals empirical support for this theory in the case of nursing staff employed by NHS hospitals, but fails to identify similar support for its application to medical staff. The paper demonstrates the extent of spatial variation in private sector and NHS wages, considers the choice of comparators and spatial geography, incorporates vacancy modelling and illustrates the effect of spatial smoothing.