Northern skies are starry. Four out of 10 of the first wave of foundation trusts are in the north of England; the north-east and north-west and Yorkshire get a higher star count than other English regions.

That's puzzling. Doncaster, Sunderland and Liverpool are not renowned for their public services, yet all are centres of acute care excellence. It cannot be that their patients are somehow healthier. On the contrary, northerners are more likely to suffer ill health. It's not that they get more money or teach more medical students. Nor is there any evidence that northern hospitals are better managed than those in the south, say Carol Propper and colleagues from the centre for market and public organisation at the University of Bristol in a new report.

Northern hospitals offer better care because private sector pay levels are lower in the areas from which they recruit. That has consequences for their staffing.

"The marginal quality of the nurses they recruit is higher than in high wage areas, which also have problems with retaining staff," says Propper. Hospitals in areas where nurses are paid relatively well compared with the private sector score higher on a range of performance targets. That is because hospitals with lower staff turnover tend to offer higher standards of care.

Nurses play a central part in determining how hospitals are assessed. Department of Health star ratings (and the measures now used by the Healthcare Commission) rely heavily on patients' satisfaction. And what patients and their relatives value, sometimes above how quickly they get better, is quality of nursing care, especially its continuity. When agency nurses quickly come and go, patients notice it.

Propper says: "Having the same nurse three nights running or staying an extra five minutes with a patient can make a difference."

She is not saying all London hospitals, which tend to be heavier users of agency staff, are worse - the figures don't back that up. But "they do tend to lose better staff sooner. Low relative pay affects morale ... their nurses may be good but demoralised".

Propper's conclusion is uncomplicated: if hospitals in areas where the labour market is tight and the private sector buoyant want to do better they have to have the freedom to pay staff more.

· The report, Explaining Differences in Hospital Performance, is at www.bris.ac.uk/cmpo/workingpapers/wp91.pdf