The NHS reforms will kill all hope of productivity gains

It’s become something of a cliché to say that 2011 will be a defining year for the NHS but it is, nevertheless, true. The health service faces the biggest shake up since its foundation. According to the Financial Times, the legislation to reform the NHS, currently being prepared by civil servants, will be far longer than the 1946 act that set up the service.

Almost everybody, apart from the government and its closest supporters,  agrees that the whole thing will be a disaster. Even people on the right of the political spectrum have misgivings. Tory MP and former GP Sarah Wollaston’s Guardian article was an elegant example of how to criticise your bosses politely. She managed to say ‘This plan is a crock of shit‘ in a way that was measured, well argued and won’t get her fired.

Just before Christmas, the right-of-centre think-tank Civitas published its report A risky business: the White Paper and the NHS. The author, James Gubb, believes that more competition is needed in the NHS and welcomes the increased involvement of GPs. However, he believes that all this could have been achieved within the existing NHS structures and without the upheaval of a massive and highly disruptive NHS reform.

The report also contains an interesting discussion about NHS productivity. Even though the NHS budget is not being cut in real terms, the demands on the service will increase, largely due to demographics. To stay within its budget and maintain current levels of service, the King’s Fund estimates that the NHS will have to increase productivity by 4 percent per year for the next five years.   

Now here’s the killer bit. According to ONS figures, private sector firms in the UK increased their productivity by an average of 2.3 percent per year in the decade to 2007. So to achieve 4 percent per year, the NHS will have to significantly outperform private sector efficiency gains for five consecutive years.

It is extremely unlikely that anything even close to this will happen. Outside the manufacturing sector, which has become very good at making year-on-year productivity improvements, gains of 4 percent per year are almost unknown. When it comes to making significant increases in productivity the NHS has almost no record at all. In recent years it has only ever known real-terms budget increases and few of its managers have experience of making savings during a period of ever reducing revenue.

Even if the NHS structure were to remain the same, the NHS is likely to fall well short of 4 percent annual productivity gains. What makes this a dead cert is that, at the same time as demanding graeter efficiency, the government plans to completely restructure the NHS. This will divert energy away from making productivity improvements. During a major restructure, people’s first priority is to protect their own jobs and power bases as far as they can. The restructure will be at the front of managers’ minds. Productivity and efficiency will take a back seat.

Organisational uncertainty bordering on chaos leaves little room for anything else. As James Gubb notes:

[W]ith such wholesale change, it is very unlikely that you’ll see too much of the new competitive impulse that Lansley has correctly identified as a big route out of the NHS’s productivity dilemma.  Why?  Because this requires strong commissioning, not the entire commissioning system being in flux.  It is no accident that the number of tenders issued by PCTs has dropped off sharply since the publication of the White Paper. 

What? Issue tenders? Are you mad? We’ve got a bloody restructure to think about!

Against this background, it is hardly surprising, that the Audit Commission reports zero progress on efficiency savings so far.

This state of flux is likely to persist for some time, even after the new commissioning bodies are set up. Organisations take time to settle down and become effective. Even after relatively minor restructures it has taken NHS trusts three years to get back to their previous performance levels. Given the size of this reorganisation, it will take the NHS much of this decade to recover from the shock. The reform process will extinguish what little hope the NHS has of making significant productivity gains over the next few years.

The reorganisation is also going to be expensive. Last month, the Commons Health Select Committee politely asked the government to stop pretending it will only cost £1.7 billion (See paragraph 92) and suggested that Professor Kieran Walshe’s £2-3 billion is closer to the mark.

There are few organisations anywhere on the planet that have managed to improve productivity by 4 percent annually over five consecutive years while, at the same time, restructuring the organisation from top to bottom and maintaining a consistent level of service to customers. At least one of these things will have to give.

The most likely outcome is that the reorganisation will be achieved at the expense of efficiency savings and patient care. At the moment, NHS management energy is going into the restructuring and that is likely to continue, at least in the short-term. At some time over the next few years, the health-service inflation identified by the King’s Fund will put pressure on budgets and the money will start to run out.

The NHS of 2015 will, almost certainly, be providing a worse level of service and have less money to spend. It will, however, have the government’s shiny new structure in place.

In writing this post I’m not trying to make a political point. At the risk of sounding pompous, these criticisms are based on my professional opinion. In my twenty plus years in management I have seen some crazy things imposed on organisations but this one reaches a new level of foolishness. If the NHS were a commercial organisation, these proposals would have shareholders running for cover.

The government’s NHS reform is unnecessary, has no evidence base to support it and runs counter to its other stated aims of improving patient care and the efficiency of the health service. If the Coalition is going to u-turn on anything during its time in power, it should be this.

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9 Responses to The NHS reforms will kill all hope of productivity gains

  1. Pingback: The NHS reforms will kill all hope of productivity gains - Rick - Member Blogs - HR Blogs - HR Space from Personnel Today and Xpert HR

  2. I agree with your sentiment, the managers I talk to in the NHS echo what you say: do one or the other, re-org or “efficiency savings”, you cannot do both.

    However, I have to comment about productivity. The problem with healthcare productivity is that it is difficult to measure. You can simply quantify outputs as activity (which is the ONS approach) and over the New Labour years this gives an aggregated 10 year drop of 4.3% in productivity. The problem is that the inputs include capital spending (much of which one can argue was delayed spending due to the 18 year of under-investment by the Thatcher/Major administrations). It also ignores the issue of complimentarity, the benefit in increased productivity that the private sector gets from improved healthcare

    However, the main issue with the ONS figures is that there has been a huge emphasis in the last decade on quality. Quality is costly, and does not necessarily improve activity, hence quality improvements result in a fall in productivity.

    This paper from York University talks about some of the issues in the ONS NHS productivity figures and gives some productivity figures of its own.

    slightly negative productivity growth between 1998/9 and 2003/4 … Since 2004/5 growth in inputs has been matched or slightly exceeded by growth in outputs, so recent NHS productivity growth has been slightly positive.

    “According to ONS figures, the private sector increased its productivity by 2.3 percent per year in the decade to 2007. ”

    Whoa, hold on there a bit. The ONS figure is for the private services sector, it is not for the private healthcare sector. I have not been able to find a like-with-like comparison between productivity of private healthcare and the NHS. The problem is that the private sector do not want to release data because of “commercial confidentiality”. The private sector, even when contracted to do work paid by the NHS, always knows that if a patient’s condition looks like it will be expensive they can just pass the patient back to the NHS. The NHS does not have the luxury of ignoring expensive patients. For this reason, it is difficult to make comparisons between private healthcare and the NHS.

    The OFT has just started an investigation into private healthcare, so we may get some actual figures when they report their findings.

  3. Rick says:

    Richard, I wasn’t trying to say that the 2.3% productivity gains were for private sector healthcare. That figure, as you say, is for private sector firms in general. I was using the figure to illustrate how much of a tall order 4% is for any organisation. Only the manufacturing sector achieves anything like that.

    On your general point about measuring productivity, I appreciate that it is a crude measure. I will have a look at the York study – thanks for that.

  4. Rick, I wasn’t criticising, just pointing it out.

    The problem is that every comment from the government on the NHS quotes “productivity” and they stick rigidly to the ONS figures. As you point out the productivity gains that they say they expect are not achievable, but that does not matter because the current “productivity” figures are used to justify the policy (there is an implied “we can’t keep going on like this”).

    The reason, why I am a bit touchy about it is that the Conservative Manifesto from last year has a graph (p26) comparing public sector productivity with the private sector services productivity, which is misleading. They were trying to get elected on a graph that compared apples and oranges.

    There is a good article by Allyson Pollock and Graham Kirkwood in the BMJ (9 May 2009) where they tried to determine whether ISTCs were cost effective. (Unfortunately, the paper is not available without subscription.) The interesting point was how much the private sector skewed the work in their favour (“cherry picking” patients, so that they only did about 30% of the work they were contracted to do), how PwC produced a rather misleading report that suggested that ISTCs were more productive than the NHS (11% more cost-effective than the NHS, yet Pollock&Kirkwood show that this figure was based on referrals, not actual activity, 70% of the referrals were referred back to the NHS!), how the Department of Health had drawn up contracts so beneficial for the ISTC providers and how the Department of Health in England and Scotland were so keen to avoid providing data.

    I would welcome any comprehensive study that compares private sector and NHS productivity on a like-for-like basis.

  5. Cal says:

    Hi Rick,

    Great blog post, and highly pertinent. My mother works as a senior HCA (health care assistant) in a Sussex hospital. She phoned me up this evening and told me that they are closing the ward on which she works.

    I’m not going to go into the political ramifications of this move: suffice to say, I sit in the ‘why are we sacrificing our national health service yet spending BILLIONS on a four-week international sports day’ camp.

    However, from a personnel issue, my mother faces different ‘options’. She can work in the neighbouring care home, which is part of the same ‘care trust’. However, a ward full of nurses / HCAs are competing for a few positions.

    Employment law dictates that the NHS can offer my mum a ‘position’ in a hospital (which includes being a cleaner) within a one hour drive from her house.

    My mum can’t drive and has pointed this out. Apparently this is her prerogative, not theirs.

    She has all the qualifications an HCA can possess but fears that for the two positions that will remain in the new centre will go to young girls rather than people her age.

    “Can I come and see someone in this hospital? I am really unwell, pay a sh*tload of taxes and would like some treatment.”

    “Sorry sir, we’re closing this hospital. However, there’s a state of the art running track down the road.”

    This is an issue close to my heart and there are a thousand personal employment stories as well as the political bullshit that underpins this criminal cuts.

  6. Strategist says:

    “The government’s NHS reform is unnecessary, has no evidence base to support it and runs counter to its other stated aims of improving patient care and the efficiency of the health service.”

    Stated aims indeed. The real success criteria are more simple: will it put more money into the hands of a few Texan healthcare corporations? Yes it will. Mission accomplished.

  7. Pingback: UK Uncut: Stop the traffic to stop the NHS being run over | Left Foot Forward

  8. Pingback: UK Uncut: Stop the traffic to stop the NHS being run over | Usefulmoney

  9. Pingback: Radical proposal to safeguard the NHS fails to tackle problem of productivity |

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