Everybody knows that the NHS has too many managers and that their numbers are spiralling out of control, right? Well not according to Dr Stephen Black of PA Consulting. He reckons that the government’s target for cutting management will leave the NHS seriously under-managed. He quotes data from US charities to make his point:
American charities are required by law to report their management costs in a way that identifies the management costs of fundraising, operating activity and the decision-making process on spending revenues. The last category is roughly equivalent to the job of a commissioner, though most charities are more focused than an NHS commissioner in what activities they undertake, so their job should be easier.
This comparison suggests that the NHS target for management cost, about 0.6 to 0.8 per cent of the £70 billion GP Commissioner budget, is not only ambitious but off the scale. Only the most extraordinarily frugal charities spend less than 1 per cent on management and administration.
Highly rated charities spend 4 to 8 per cent and some well-regarded medical charities spend more than 10 per cent. The American Red Cross spends 4.5 per cent, the American Cancer Society 7 per cent, Scripps Research Institute 5 per cent and the Mayo Clinic spends more than 12 per cent.
While their activity is not entirely comparable with Britain, they still provide evidence that if central targets for management costs are imposed on the NHS, there is a risk that commissioners will be crippled before they start.
Charities are a useful benchmark. They don’t have the regular real-terms budget increases enjoyed by the public sector and they can’t put up prices, issue shares or seek new markets to generate cash. They are usually, therefore, run very frugally. Management costs are kept to a minimum.
The data from the UK tells a similar story. According to CharityFacts, British charities spend somewhere between 5 and 13 percent of their total expenditure on management costs. Professors Adrian Sargeant and Stephen Lee, who run CharityFacts, go further:
Our own position is that we wouldn’t want to support an organisation spending less than 5% of its total expenditure on good management. Without this we would lack confidence that the objectives of the organisation would be achieved.
So even in the pared-down, strapped-for-cash charity sector, two experts consider at least a 5 percent spend on management to be the bare minimum for running an efficient organisation.
The NHS, in contrast, spent about £1.85 billion on management out of a total net expenditure of £98.3 billion last year. That’s just under 2 percent, even less than last year’s 3 percent. After the cuts demanded by the government that will shrink to somewhere around 1 percent. For commissioning bodies, Dr Black calculates that the percentage spent on management will be even lower; somewhere between 0.6 to 0.8 percent. If the NHS were a charity, then, Professors Sargeant and Lee would be telling us to avoid it like the plague.
Could it be that NHS definitions of management are light because they don’t include many administrative activities? This definition applied to Primary Care Trusts and presumably, therefore, to the successor commissioning bodies, is anything but light; it includes just about everything you could possibly define as management. The definition for other NHS trusts is similar. All directors, support departments and senior managers earning over £30k in clinical departments are classed as management. If all that costs the NHS under 2 percent of its expenditure it’s cheap at the price. According to the NHS Confederation, hospital management costs in Canada and the USA are 10 per cent and 17 per cent respectively. That makes the NHS look lean and mean.
But is it too lean, as Dr Black claims? Given that the NHS is about to go through the most far-reaching organisational change since it was founded, good management skills will be essential. Management might be a dirty word in some quarters but I have never seen any organisation manage a change of this magnitude without competent managers. With the usual caveats about quality and capability, the NHS may, indeed, need more managers, at least for the next few years. Some NHS executives are already warning of chaos as PCT staff take their redundancy payments and run. Their fears are echoed by the NHS Confederation and the King’s Fund which concludes:
Large cuts in management costs and the abolition of primary care trusts and strategic health authorities will make it difficult to ensure there is effective change management in place to support implementation of these proposals.
That’s a polite way of saying that, if you get rid of the few people in the organisation who have the skills to manage large-scale changes, then your changes will almost certainly fail. The NHS is getting rid of its managers with undue haste just when it needs them most.
The rhetoric about NHS management costs and the demonisation of its managers is craven populist nonsense. There may be inefficiencies and poor capability in some areas but the overall cost of management in the NHS is low. Good management makes better hospitals. Cutting management costs to levels that would be unrecognisable in the private sector would almost certainly lead to worsening levels of service, even if the NHS were to continue in a steady state. To slash the management during a time of unprecedented organisational change is really asking for trouble.