The other health story

7 Mar 13

Productivity levels have long been an issue for the NHS. But with spending at a standstill and demand soaring, the problem is becoming acute

From the horror stories in Mid Staffordshire, to the dramatic parliamentary debates on privatisation, the challenges facing the National Health Service are looming large in the public eye. Yet underneath the passions that surround issues of structure and quality, the NHS faces a less visible but equally challenging problem: how to meet rising demands for health care within static real terms funding.

The Nuffield Trust's latest report has gathered together the annual accounts data of every NHS hospital and PCT in England for the last 9 years. We have tracked health service finances over years of reforms, spending increases, and the beginning of austerity, tracing the patterns of spending and labour productivity.

The picture is mixed. Overall, hospital trusts are living within their means and have a small surplus – although there are a small, but growing, number that can’t balance their books. The Department of Health calculated that in 2011/12, across the NHS, acute hospitals had delivered £2.9 billion of savings.

But savings are not necessarily the same as efficiency improvements. When we looked at crude labour productivity, a less positive image emerged. Despite the drive for savings, hospital output per pound spent on staff is flat lining.

Measuring productivity in health is complex and contentious. Our measure of labour productivity is basic. Its biggest weakness is that it doesn’t take account of the quality of care, reflecting the difficulties in comparing inputs and outputs at the level of individual hospitals. But the results of our study are very similar to other studies, which show stagnant productivity in the NHS stretching back to the 1990s.

The apparently limited improvement in NHS productivity was a source of concern even in the years before 2010/11, a period in which the NHS was enjoying rapid spending increases. With the health service now facing a medium-term future of little or no real terms growth in budgets, it starts to look truly worrying. As an ageing population places increasing pressure on services, we estimate that the NHS could need to find between £44 and £54 billion in productivity gains by 2021/2 to match supply and demand for health care. If it is to even come close to that, those gains need to be identified very, very soon.

The task is daunting, but our research suggests some first steps. We find that workforces with a higher proportion of doctors and other medically trained professionals appear to be more productive. Further research needs to break this down, and see if a changing staff mix could spread better staff productivity. Meanwhile, larger trusts tend to have lower labour productivity, suggesting that a policy of caution with respect to mergers might be wise.

When we break hospitals down by region, we find a marked north-south divide in labour productivity. Policymakers need to know why this is, and if it can be changed: closing the gap between the North-East and the South-West could save billions.

We also need to remember that improving hospital productivity will not be the only way to make ends meet. There is a possibility that we could provide better care for less by reducing the amount hospitals are asked to do in the first place. For years, politicians and policy makers have talked about boosting efficiency by focusing on preventive care, and giving patients the means to manage their own conditions, before they reach a hospital bed.

Again, our research shows that progress here has been mixed. Although spending on community nursing has been increasing at a rapid rate, we also find that hospital spending has been rising faster than overall spending, and funding for GP services has been falling in real terms. The NHS Commissioning Board and clinical commissioning groups need to join the dots between GP surgeries and hospitals, and ensure that patients always receive treatment as close to their first point of contact with the health service as possible.

If we are to maintain care free at the point of use, only three things can fill the widening gap between rising demand for health care and limited budgets. Either the public pays more for care; or the NHS rations the care provided; or it becomes more productive. Whether or not the last option can ever fill the hole entirely, taxpayers and patients have the right to expect the NHS to search for every opportunity to improve efficiency.

  • Anita Charlesworth
    Anita Charlesworth

    Anita Charlesworth is director of research and the REAL Centre (Research and Economic Analysis for the Long term) at the Health Foundation

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