The NHS will have to become much more productive to survive

Another day, another story about the NHS struggling. Analysis for the Health Foundation found yesterday that improvements in hospital efficiency in recent years had been way below what was expected. Logically, this failure to improve productivity means that, to keep the same level of service, funding has to be higher – you require more inputs. Already, then, there are calls for the £8 billion a year that NHS England says it needs by the end of the next Parliament to be considered an “absolute minimum”. Expect the arms race for NHS funding in the General Election to ramp up again.

I sometimes wonder whether I’m missing something in all this. Every day there’s a story like this in the newspapers, yet still NHS worship rumbles on. International comparisons of healthcare outcomes show, time and time again, that the UK lags behind other advanced nations when it comes to cancer or stroke survival rates or mortality amenable to healthcare – the famous ‘keeping people alive’ – and indeed on measures of efficiency. Yet the debate we always have is couched as ‘protecting the NHS’, rather than being about how we achieve better healthcare. As my colleague Kristian Niemietz outlined last week, our public debate on health is parochial and inward-looking. Whilst in other policy areas we pine to learn from international examples and best practice, in health we think we know all the answers.

It’s not clear to me why we believe we have nothing to learn. I spent much of the Bank Holiday reading James Bartholomew’s new tour de force The Welfare of Nations, in which he spends one chapter scouring the globe for the best health system. What becomes clear is that all systems have difficulties and entail trade-offs. Ageing populations put pressure on most, and even within systems getting the incentive structures right is vital to get good waiting times, contain costs and ensure universal coverage. Yet what’s absolutely clear is that the UK is far from being the only country which has achieved universal access to healthcare, despite us celebrating it as if we were.

In fact, we seem to hold the NHS to unrealistically low standards. We seem to either compare the NHS now to having no healthcare at all, or to the healthcare people got in 1948 – when as a country we were much poorer. It’s a bit like coming out of Sainsbury’s and celebrating the fact you’ve been sold some Spanish strawberries. Rather than assessing whether they taste any good or look appetising, we are overly grateful for the fact that they are there. Then when politicians are pressed on international comparisons, they hide behind the highly costly and inefficient US health system (see Andy Burnham seek to deflect a question from the ASI on European systems towards the US-UK comparison here). This completely ignores the highly effective and efficient healthcare delivered in Singapore or the host of social insurance models in Europe (see this paper for analysis of Switzerland, Germany and the Netherlands).

Sadly this complete unwillingness to even engage with different ideas about how to improve the NHS is putting the UK in a vulnerable place. There are two distinct but related issues here. The first is seeking to deliver a given set of outcomes in the most efficient way possible. The second is how you improve outcomes, irrespective of cost. The stated advantage that Burnham believes the NHS to have over social insurance models is that it is better at containing costs. At least part of this, though, is likely to be because in social insurance models, it is much easier for individuals to ‘top up’ their care privately. If people want to spend more on healthcare, that’s not ‘inefficient’ per se, but simply a choice.

Which brings us back to the productivity issue. If we are to broadly maintain a Pay-As-You-Go NHS financed through general taxation, with it being politically impossible to move to a system of personal health savings accounts and/or some form of social insurance, then improving productivity becomes vital for the public finances in light of an ageing population. The OBR spell this out clearly each year in their Fiscal Sustainability Report. Their central assumption is that productivity growth in healthcare will be the same as in the broader economy – meaning an ageing population will lead spending to rise by 0.6 per cent of GDP per year within 50 years. But on the assumption that healthcare productivity growth is just one per cent per year (the average seen between 1979 and 2010), this increase could be as large as 6.5 per cent of GDP – necessitating huge tax rises on a working population which is relatively shrinking.

Clearly, this would be unsustainable. So if you want to maintain an NHS free-at-the-point of use and funded through taxation, dramatic improvements in productivity will have to be made. This is tough in a labour intensive industry. One can imagine that significant technological developments in future could help somewhat. But for the foreseeable future healthcare looks set to be characterised by personal care and costly licensing practices for both doctors and drugs.

A range of marginal changes could help. Financial incentives to make better use of self-monitoring equipment, for example. Rationalisation of hospitals is known to improve efficiency. A greater openness to innovative new providers to provide more competition, and freedoms for doctors and nurses to try out new things. No bail out clauses, such that payments for hospitals are based on some payments for outputs, plus some fixed cost factor for operating the hospital. Unfortunately, though, the same people who most object to major reforms of the health service are also the ones who object to these smaller-scale measures – railing against ‘privatisation’ and ‘competition rather than cooperation’.

The inconvenient truth is this: the UK has significantly worse outcomes than many other advanced countries which deliver universal access to healthcare. There is a political unwillingness even to entertain some things that deliver better for other countries. But even without changing the funding model or the balance between where responsibility for healthcare lies between state and citizen, the NHS will have to become much more productive to survive. Recent and historic evidence highlights how difficult this will be. But change will come – so opponents of reform will have to deal with it.

This article first appeared on Conservative Home.

Head of Public Policy and Director, Paragon Initiative

Ryan Bourne is Head of Public Policy at the IEA and Director of The Paragon Initiative. Ryan was educated at Magdalene College, Cambridge where he achieved a double-first in Economics at undergraduate level and later an MPhil qualification. Prior to joining the IEA, Ryan worked for a year at the economic consultancy firm Frontier Economics on competition and public policy issues. After leaving Frontier in 2010, Ryan joined the Centre for Policy Studies think tank in Westminster, first as an Economics Researcher and subsequently as Head of Economic Research. There, he was responsible for writing, editing and commissioning economic reports across a broad range of areas, as well as organisation of economic-themed events and roundtables. Ryan appears regularly in the national media, including writing for The Times, the Daily Telegraph, ConservativeHome and Spectator Coffee House, and appearing on broadcast, including BBC News, Newsnight, Sky News, Jeff Randall Live, Reuters and LBC radio. He is currently a weekly columnist for CityAM.

1 thought on “The NHS will have to become much more productive to survive”

  1. Posted 09/04/2015 at 16:43 | Permalink

    One of the problems with the old nationalised industries was that, no matter how poor their performance, they were never allowed to go bust — and go out of business. The same is true of the NHS. We are now, on average, very much better off than we were in 1948. So it would hardly be surprising if some people would now be willing, indeed eager, to pay a bit more in return for improved performance. I would myself. But the politicians don’t care what people would prefer — as illustrated by the refusal of two of the major parties to contemplate a referendum on UK membership of the European Union. When I buy food from Marks & Spencer, I’m not interested in excuses about why they can’t get bananas — I just go across the road to Waitrose. Both of these organisations aim to satisfy customers — at a profit. I wonder if the politicians who profess to be against profit-seeking realise how much of our improved standard of living is due to the fact that there is competition, trial and error, consumer choice and all the rest in the market system. The truth is: the NHS, for some people, is a religion — and their support for it depends on faith not on reason. Does anyone really think that even if the NHS were to cost three times as much as it does, for the same indifferent performance, any mainstream politician would change his or her mind about its value? That is why respect for politics is at such a low level.

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