The NHS in England is rarely out of the headlines and three big issues seem to dominate the coverage: safety, reform and efficiency. We’ll probably visit the first two in later posts, but for now we’re going to concentrate on the last issue – the question of health system efficiency.
In 2009, the management consulting firm McKinsey produced a report for the Department of Health which modelled future funding and expenditure over a five year period in England. They estimated that, due to fiscal tightening of public finances coupled with ever-increasing demand for healthcare, the NHS in England could be facing a recurring funding gap of £10-15bn a year by 2014. In the same report, McKinsey estimated that £13-20bn of productivity savings could be realised in the same period through provider productivity improvements (around half of the savings) combined with a mix of rationing (withdrawing funding for ‘low value’ clinical treatments) and reorganisation (shifting care from hospital settings to community). One year later and the NHS Chief Executive, Sir David Nicholson exhorted all NHS organisations to strive to achieve these efficiency improvements in what has now become colloquially known as the £20bn ‘Nicholson challenge’.
To put that in context, you could easily run more than 100 district general hospitals for £20bn a year
It’s worth noting that, technically at least, this does not represent £20bn of ‘cuts’. The NHS escaped the last government spending review with no real term reduction in funds (ie after allowing for normal price inflation). So it may be more meaningful to say that the NHS will need to ‘absorb’ an additional £15-20bn of clinical work within its existing budget. However, there’s no escaping the fact that this is a huge, huge challenge and many are claiming that it is simply undeliverable.
Let’s assume for argument’s sake that the NHS in England costs around £100bn a year to run, so we’re talking about a 20% productivity gain over five years. To put that in context, you could easily run more than 100 district general hospitals for £20bn a year.
So this is big. And unprecedented. The NHS has never faced such a massive efficiency challenge in its history, so if it stands any chance of success, what needs to happen? Well, we don’t know the answer (!) but what follows is a kind of ‘thought experiment’ which will hopefully expose some of the issues and provoke further debate.
The McKinsey solution is a possible starting point, but is unlikely to yield the answer in the long run. Providers of healthcare are already struggling to balance their books and many organisations are caught up in a vicious circle of increasing deficits, so layering another excessive efficiency demand upon them will almost certainly destabilise the sector for many years to come. Quality is also likely to deteriorate if tariff rates for hospital activity are reduced too far, and institutional gaming of the system will arise to make up the lost income in other ways – as it always does. The rationing and prioritisation agenda is patchy and marginal, subject to appeal and often heavily scrutinised by the public and media, so that is unlikely to produce the goods either. And the evidence for efficiency gain arising from community reprovision is conspicuous by its absence.
So what is to be done? Here are a few ideas from us, none of which we should say has been researched or evidenced. They are just ideas – your starter for ten. This is just a thought experiment after all.
First, we need to recognise that, in order to absorb another £20bn of clinical work within the NHS, the balance between clinical and non-clinical resources will need to change. The service will need more doctors, nurses, other healthcare professionals, clinical space, equipment and consumables. Within a static budget, that means that all other non-clinical activities (finance, administration, support services, etc) must consume a significantly lower proportion of the total spend than currently is the case. This will need to be a shift in order of magnitude of £billions not £millions to be significant. Of course, achieving that shift – whilst maintaining or improving the quality of management support to the frontline – is the tricky bit. But it must be acknowledged.
Second, there is an increasingly strong case to abandon the purchaser-provider split. Whilst the system introduced in the 1990s has had some benefits (around quality, access and efficiency), its adversarial nature now just seems to be getting in the way. Integration and collaboration are fundamental to redesigning a more efficient health service and it may be worth re-visiting the pre-1990 planning model where each geographic area (district health authorities back in the day) worked within a fixed budget and deployed this in the most effective way between primary, secondary and other providers. If this were clinician led, with a ‘good enough’ planning support team, then whole departments and organisations would no longer be required to run the system, slashing transactional costs at a stroke. There would be a downside of greater performance and governance risks perhaps, but we’ll need more imaginative ways of addressing those which don’t involve multiple bureaucratic layers.
Third, and following from the first two points, let’s abolish Payment by Results. It consumes a huge amount of resource to operate, is frequently circumvented and undermined through closed-room deals, and still only covers no more than 50% of NHS spending, leaving the other 50% subject to fierce price competition. Like the purchaser-provider split, it has had some utility in the last decade with incentivising waiting list reductions in a time of unprecedented financial growth, but now it just incentivises activity in all the wrong places.
It must cost many hundreds of £millions if not £billions to operate this transactional contracting environment and if we’re serious about re-profiling resources to the front-line, then surely the time has come to ask whether we still need it. We can continue to use the contracting and tariff data (whilst it exists) for benchmarking and analysis, but let’s use the data intelligently rather than assuming all providers should cost the same, as they clearly do not.
A fourth suggestion is to standardise everything. The NHS is a patchwork quilt of nationally defined contracts, standards and directives interwoven with locally negotiated exceptions, business rules, pathways, and variation. If we assume that (a) we have to run the NHS with much less bureaucracy and (b) with maximum equity, then we cannot afford to have every organisation, network and health economy designing its own procedures, protocols, pathways and priorities. Just do it once centrally, but do it well. This means employment terms, clinical standards, treatment priorities, supply chain partners, back office systems, organisational policies, everything. Involve the experts, the public and others, but mandate it for the whole NHS.
We’re sure everyone who works in the NHS can think of at least one process which they know adds little or no value to the patient experience.
Our fifth suggestion is that every organisation, board, department, team and service be subjected to a rigorous economic evaluation designed to identify low value processes. We’re sure everyone who works in the NHS can think of at least one process which they know adds little or no value to the patient experience. Let’s agree a kind of evaluation checklist scoresheet and apply it to everything that’s done. Things at the top are essential for patient safety, outcomes, quality and efficiency, whilst those near the bottom much less so. Stop doing everything below a cut-off point, which will be determined by affordability and legal compliance.
Sixth, in parallel with all this, the NHS needs to get serious about maximising employee productivity. Not just piling more of the same work onto already over-stretched staff, but supporting the workforce to work much more productively. Almost certainly, this needs investment for a quantum leap in training, coaching and managing all the human resources of the NHS in new and innovative ways. Again, we’d challenge you to find anyone in the NHS who did not have views on how this can be achieved. It could involve small changes such as shadowing peers to acquire better skills. Or medium-level changes like breaking down institutional barriers in the way staff work across organisations. And there would be a case for large-scale interventions such as the creation of a whole new type of trained healthcare worker that doesn’t yet exist.
Finally (for now at least), our seventh suggestion to consider is that the NHS really needs to work across the whole of government and civic society to raise the profile of preventive work. To date, most demand management efforts have focused on the immediate demand expressed by patients who are already unwell (triage, referral management, diversion schemes, and so on). Again, these are often costly initiatives with only a marginal impact which move the ‘problem’ somewhere else. A renewed focus is therefore needed upstream on the direct prevention of ill health (through screening, health MOTs, health promotion, social marketing, etc) and indirect prevention (health impact assessments for government policy, social inclusion, living wage, industrial incentives and penalties to encourage healthier lifestyles). Such activities can often smack of ‘the nanny state’, but given the scale of the challenge, can the NHS seriously not afford to look again at the opportunities they could yield?
OK, so those are our seven suggestions to get you started. We’re sure there are many other ideas of equal or better merit out there. And we don’t pretend that any or all of our suggestions are even achievable. For one thing, the NHS is a political entity and political interest may militate against some of our suggestions. And we may be wide of the mark with the evidence in some places. But, that’s OK, because this is after all just a thought experiment.
So, what does everyone else think?
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David, nice to see the application of good business sense to the issues facing our NHS. This pragmatic approach, implemented numerous times in businesses across the world would without doubt make a huge contribution towards saving the NHS. Getting back to core values and removing processes that have little or no value to patient outcome is the only way to go. A little localisation for specific needs would be necessary, but other than that why don’t we just do it?
Thanks for stopping by, Phil, and for your encouragement. Of course, the devil is always in the detail and reaching a consensus on what constitutes a mission critical activity will be the hard bit. But there are plenty of examples of this kind of approach in evidence around the NHS, they just need to be scaled up to an institutional level. Easy to say, but hard to do!
“To put that in context, you could easily run more than 100 district general hospitals for £20bn a year.”
But £20bn over 5 years is equivalent to 4% productivity gain per year every year, ie about £4bn per year, or 20 DGHs. (Monitor is actually asking for 6-7% productivity gains for the next 4 years.) Coincidentally, there are about 20 hospitals that are unlikely to gain FT status, and closure is an option (although, an option that is unlikely to be chosen).
“The service will need more doctors, nurses, other healthcare professionals, clinical space, equipment and consumables. Within a static budget, that means that all other non-clinical activities (finance, administration, support services, etc) must consume a significantly lower proportion of the total spend than currently is the case.”
McKinsey says cut the number of clinicians, and this is happening (False Economy – full disclosure, I write for them – used FoI to come up with a figure of 50,000 job losses). ONS analysis of NHS productivity says that the main rise in costs over the last decade are due to the high growth in the cost of goods and services supplied to the NHS (in 2008 this made up 41% of the total). This is where the NHS should concentrate. Value Based Pricing for drugs is not the answer (the pilots have shown that it does not work, and DH have yet to say how they will make it work). One answer is strengthening NICE and making sure that they are more stringent, but it means that politicians will have to take the flak when NICE says no to drugs that are expensive and have little clinical value (or if they won’t take the flak, they must come up with the cash). The NHS also has to get smarter with suppliers, particularly the drug companies. It is bizarre that the NHS does not purchase drugs centrally, surely as a purchaser for 50m people they will have bigger clout to get a good price than as smaller commissioning groups and trusts?
As to abolishing PP and PbR this could provide a political benefit for the Coalition (to get politicians to do something, you have to throw them some carrots). When Lansley said he would cut “administration” the newspapers assumed he meant in hospitals. However, 1) FTs are out of his control, so he couldn’t touch them; and 2) the admin in hospitals is required to maintain the internal market and PbR. Since Lansley could do nothing about admin in hospitals he decided to vent his frustration by cutting PCTs so much that they no longer existed! By abolishing PP and PbR Lansley can tell the electorate that he has cut tens of thousands of hospital managers: a political win for him.
“A fourth suggestion is to standardise everything.”
Nice, but… if you standardise everything you are by default getting rid of competition: if everything is standard and there is no scope for innovation, so what can providers compete on? This suggestion is unlikely to go down well with politicians, especially since the current lot have an obsession with “localism” which is the antithesis of standardisation.
“rigorous economic evaluation designed to identify low value processes”
No. For example, my local hospital makes a surplus on every service except paediatrics. Under your suggestion this department will be closed. The hospital provides this service because the next nearest hospital is 15 miles away and the board have decided that local parents would prefer not to have to travel that distance: it is provided as a social benefit. Surpluses from the other services subsidise paediatrics. Also, I would say that the suggestion to identify “low value processes” contradicts the suggestion to abolish the internal market. How would you know what service is low value if you are not collating all the data needed for the internal market? Also, if a hospital is given a budget then it should be able to choose how to spend that budget.
“get serious about maximising employee productivity”
I am not sure why you think it is *staff* who have a productivity problem. It is *systems* that are the problem. A staff member can work very hard and be very efficient at a job that is economically worthless.
At my local hospital they have found that the current system of having a porter visit every department once an hour to collect bloods for pathology is inefficient. Now they have someone visit the departments every 15 minutes and productivity has gone up! Yes they have had to use more porters, but the major cost is the clinician. Once an hour collections often mean that down the line a consultant does not have the patient’s results meaning that the patient stays one more night in the hospital and the consultant has to make yet another visit to the patient the next day. More frequent collection of bloods (and other improvements in the system) makes it more likely that the consultant gets the results and the patient gets discharged early. Shorter stays in hospital is better for the patient and this quality gain and the gain in a shorter length of stay means an improvement in productivity. So don’t treat staff as the source of inefficiency, instead, look to the system.
“raise the profile of preventive work”
Indeed, but unlikely to happen with a government that hates the nanny state.
A great response, thank you Richard. Lots of good, real-life examples highlighting the scale of this particular challenge. There are just a few of the points you’ve made that I’d like to clarify further.
First, the issue of standardisation was intended to be competition-agnostic. Perhaps my original point was unclear. I was alluding to the fact that so many decision processes (which consume valuable time, energy and resources) are undertaken many multiple times in different ways when they could be done once over wider regional or national footprint. I’m thinking here of things like consultant job planning, guidelines for ordering clinical tests, referral thresholds, safe staffing ratios, clinical pathways for routine health conditions, quality standards, and so on. There is a lot of ‘wheel reinventing’ going on. I’m not sure how this might preclude competition (intra or extra-NHS) any more that a good technical design specification for a building construction tender would preclude competition among bidders. Providers can still compete on value for money, quality, responsiveness and innovation, but within a tighter framework.
Second, I liked the example of your local paediatric service and it would indeed be closed under my proposal if affordability were the only criterion that was used. But I was thinking more broadly in terms of societal value (from an economic perspective) where I imagine such services would continue to be highly valued. And besides, the question of affordability only makes sense in this way if income is tied to a notional tariff, a system which I have already suggested we might want to revisit.
And finally, productivity. I take your point about system efficiency and perhaps that is a more meaningful way to frame the problem. Thanks.
None of this will happen, because most of what you have written sounds sensible!
Your first four suggestions will possibly have the biggest impact on frontline patient care and savings.