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17 December

NHS: price setter or price taker

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The UK National Health Service remains a global powerhouse when it comes to spending power and scale of operations. The NHS spends £116 billion each year and employs over 1.6 million people. If the NHS was a country it would rank around 59th (out of 197 countries) in GDP terms using nominal data.

Of all the global sovereign states it would rank around 150th in population terms. It has huge purchasing power, a significant economic multiplier effect, one major employer and potentially offers tremendous innovation and spin-out potential Thus, it is only natural for Lord Carter to use a quasi economic vocabulary.

However, if it were a country it would have the IMF on its doorstep.

The point of course is that it is not a country and the Carter report seeks to set out some grand ambitions:

  • Workforce
  • Hospital Pharmacy & Medicines Optimisation
  • Estate Management
  • Procurement

These objectives are grand ideas but simplify the challenge and indeed the scale of the required transformation. Talking of workforce productivity, management of productive time, effective workflow rostering, effective use of clinical time etc seems to me to be a regressive vocabulary and to be full of jargon and consultancy speak. The essence of the NHS is that it thinks as itself as a sovereign state with an authoritarian governance structure that has driven out any ambition or far more seriously initiative and innovation at a system level. What is required is a thorough review of the business model and its purchasing and cost accountancy practices. Like a supertanker it will take decades to change its course under the current plan.

Workforce spend as a percentage of expenditure at around 63% is higher than other public institutions and while there are savings to be made it is not that high when placed in the context of patient care and mandatory staffing levels. Simple calculations, such as 1% improvement in workforce productivity would save £400M are not helpful in understanding the real issues. The issues that could really make substantive savings are those related to the NHS spending power.

The problem is highlighted by a series of IT disasters and management failures to date that has left the organisation in intensive care. The workforce morale is suffering with the inevitability of each day's fight for resources drains personal and corporate energy from the system.

Real transformation potentially requires two measures:

  • Workforce productivity although it is perhaps an unhelpful vocabulary for the transition plan. Productivity is a function of: the availability of staff; the skills of the staff; the motivation of staff; the cost of the staff; the numbers of potential staff in training and the level of decision making that each employee has operationally and strategically. Clarity of the route to achieve your goal and a systemic alignment of each and every process is critical.
  • Cost control seems to be a major area for any plan to focus on. Cost control is a function of: whether you take prices or make prices; efficiency of strategic or consortia procurement agreements; the way costs are accounted for in financial accounts and the leveraging NHS purchasing power at every level in the organisation. Again clarity and alignment across and through the organisation is required.

These two measures implemented correctly are both linked to effectiveness of strategic procurement. Why manage a business on minimum rotas then buy in staff at twice or three time the daily rate. This is the madness of accounting paperwork. If this model is seen as an important method of containing fixed costs associated with labour then at least use your buying power and government clout to establish the market price for such labour. Fixed costs and labour productivity are usually fairly inelastic in terms of workload and costs if everything else is in balance. It seems madness to incentivise employed staff through poor pay and hours to take on agency roles to work the exact same hours or do double shifts.

Total Procurement Control is the pill to be taken by the NHS every minute of every day and the cure and prognosis will be palpable.

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