Does the NHS need more managers?

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.

This entry was posted in Uncategorized. Bookmark the permalink.

16 Responses to Does the NHS need more managers?

  1. Pingback: Does the NHS need more managers? - Rick - Member Blogs - HR Blogs - HR Space from Personnel Today and Xpert HR

  2. Mike Chitty says:

    What the NHS needs is good management. This may or may not be directly related to what it spends on management.

    If the NHS had good performance management systems engaging staff in improving services and value for money and developing their potential I am sure that we could get a much better service.

    I have been watching mediocre organisations in all sectors salami slice budgets for management and training in misguided attempts at remaining competitive in the eyes of commissioners and other funders. It is a massively false economy – but when your ‘performance’ as an organisation is primarily judged in the short term then why would you invest for the long?

  3. CharlieMcMenamin says:

    Well, yes, sort of. Or possibly not.

    Which is to say I do take your general point but I’m very conscious of the real difficulty of making sensible comparisons across sectors, let alone internationally. As someone who has spent more than a bit of time thinking about how to present charity and other not-for-profit accounts so they look good for funders concerned about ‘administrative’ waste (ah, the days when ‘management’ was simply ‘admin’- makes you feel nostalgic, doesn’t it?….) I am only too conscious of how labelling can play a important part there. I recall, for example, a well known homelessness charity which, in the 1990s, was in the habit of producing accounts showing 2% management overheads. Very lean and mean , I’m sure you’d agree. If you looked hard enough however you found a further 13% of turnover described as ‘project support costs’ – central management by any other name

    & so it goes. I note from the PCT definition of management costs you link to that certain things are excluded- especially everything except staff costs. So, no office or property costs included, nor any other infrastructure costs. No Health Informatics Services to be included, nor anything spent on clinical governance.

    Now, for all I know, all this may be a very reasonable definition of management costs in a PCT. I’m in no position to challenge it that’s for sure and I accept the general point that different industries will define this category of expenditure in different ways.

    My point is simply that though I agree that the NHS does need to be effectively managed you cannot easily prove the point it is either over or under managed on the basis of these sorts of high level comparisons.

  4. Rick says:

    Charlie, I take your point. I tried to do some like for like comparisons with private and voluntary sectors but I gave up. I just don’t have the time or resources to compare the different definitions and ways of accounting. There’s probably a dissertation there for an MBA student though.

    That said, if you used the same definitions, i.e. all the directors’, support functions’ and senior-ish operational managers’ salary costs, I’d be surprised if you got it much below 2 percent in any organisation and in many it would be significantly more.

  5. karencwise says:

    Intersting post. Having been in a position whereby I’ve had to report centrally on my “management headcount and costs” I’d like to point out that in these official returns the definition of “management” has changed frequently, and always in a way that results in lower figures being presented…..funny that!

    Secondly, I agree with Mike. I work across a range of NHS organisations, and either my expectations and standards are too high, or there are some poorly performing managers out there. However, it takes time & investment to raise the bar.

  6. ptkwp2010 says:

    The NHS could really do without more managers like Dean Royles – see – but then not knowing what you are doing gets you to the top of the CIPD (he’s the Chair) and he’s just been promoted to head up NHS Employers (after the last 2 senior people left under a cloud). Looks like a bit of talent management and some serious outplacement wouldn’t go amiss.

  7. Rick says:

    Karen, I understand what you are saying about moving goalposts but would that change the overall amount by much? Those definitions on the DH website seem pretty comprehensive to me.

  8. Vince Lammas says:

    Of course Mike Chitty is right to highlight it’s the quality of leadership and management that matters and it is interesting to recall, in 2009, the DH removed the cap on management costs for (assumed to be well-managed) Three Star and Foundation Trusts as part of the “earned autonomy” framework.

    I’m not sure it’s clear NHS management is quite so lean and mean. When the Audit Commission looked at Trust level management in the 1990s, they found costs were around 4%, rising to 10.5% including wider administration.

    The House of Commons Health Committee reported, earlier this year, the DH had (unpublished) research from York University showing NHS management costs were around 14% of revenue. Overall this would place it on a par with other organisations referred to in your article.

    I share Karen’s recall of the reporting process and NHS Trusts may have applied guidance on costs in a way that created the appearance of frugality.

    More important, I think, the “large superstructure” of DH and SHA planning and management has historically reduced Trust-level management costs compared to other organisations. Obviously the White Paper looks to remove much of that overhead (though whether it will be effective and reduce costs – or just move them – is an open question).

  9. Cian says:

    2% does seem low, but a better comparison would be with other health care systems surely? Also, surely a lot of management here takes place within the ranks of nurses and doctors? In a way that is probably not true of charities in quite the same way.

  10. Ian Watson says:

    I’m no financial guru but should not a singularly massive organisation like the NHS benefit from the economics of scale and require spending a lower percentage of its budget on paying managers than say a much smaller organisation like a charity? If not then why do we see so many mergers such as the paltry scale Westminster, Kensington and Chelsea, Hammersmith and Fulham merging to save administration costs? What we need is comparison of like for like scale rather than sector or function.

  11. Rick says:

    Ian, if the NHS were managed as a single organisation, you might expect that to be true but it isn’t. Or, at least, it isn’t all the time. Individual trusts and especially the foundation trusts are pretty much autonomous these days.

  12. ptkwp2010 says:

    Absolutely right Rick and of course managers can’t manage the medics

  13. Tess says:

    You have to compare like for like when investigating management and admin costs. In past times, charity finders looked at a charity’s accounts and of course preferred to give to those with lower admin costs. But a small charity will have disproportionately higher costs than a large one if they are paying for management rather than relying on volunteers.

    Modern charity accounting encourages apportionment of management and admin to projects, which makes sense as activities always have to be managed and administered to avoid ineffectiveness. So if u look at current charity accounts, you will usually see a small ‘overhead’ %- which makes for a more level playing field when deciding where to give money. Of course, that can mean that some charities may be over-administered but a funder can always ask for more info about how the admin costs are apportioned.

    Without forensically picking apart every entity within the NHS, I don’t see how we can ever know the % spent on management and admin – nor whether that % is high or low as the benchmarks of other healthcare systems are also inscrutable.

    As someone ekes has said above, good management and good admin is more important. Having just looked at the structure and job descriptions of people working in the Organ Transplant directorate of NHS B&T, I have concluded they are over-managed because those who designed the new organisation last year were incompetent – or else they just used an external consultant to draw up the JDs.

    Has anyone added in the cost of external consultants to the management costs? This number will undoubtedly rise in future as the new GPCC hire in the people made redundant from the PCTs to run their new empires.

  14. Rick says:

    Tess – looking at the definitions of management used by the NHS they seem pretty comprehensive and there isn’t much wriggle room. I don’t know how effectively they are policed but now all employee records are held on a single system I would imagine that it is quite difficult for individual trusts to manipulate the data (though I wouldn’t rule out inputting and catagorising errors).

    External consultancy spend is about £300 million which, added to a total management cost of around £2bn won’t make a lot of difference. It still gives a relatively low figure.

    As you say, the quality of management is important and it is difficult to compare across organisations. I also don’t doubt thats ome parts of the NHS are over-managed. I’ve come across some of them. But the general charge repeated ad nauseam, that the NHS has too many managers, just doesn’t stand up to scrutiny.

  15. Tess says:

    Rick – I’ve downloaded the cost docs from the links in your post but haven’t had time to read thru. Do those costs include GP management/admin?

    Clearly, an organisation employing 1 million people and serving 60 million customers needs managing and administering. If yours and Peter Black’s calculations are correct, why is the government banging on about excess management?

    All rather baffling.

  16. Hugh says:

    There are far too many managers within the nhs!! Not only is there an excess of managers they are bad managers.
    1) They are completely out of touch. They have no clinical basis to base their decisions on. You can not treat the NHS as a simple straight forward business as it is not.
    2) The managers within the NHS are of poor standard. They are unable to get a management position within a decent company as they are no good.. so they settle for destroying the NHS.
    3) They are well protected, as the morons that employ them (i.e. government) are to stupid to see how useless they are.
    I work within the NHS and on a daily basis see where we could easily save money without losing staff.
    At this rate the NHS WILL NOT survive!
    Solution : Get rid of the bad managers, hire a few good managers with senior clinical support.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s