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Health reforms will cut quality rather than boost productivity

Improving productivity is often cited as the reason for the government’s health reforms. But a closer look shows some surprising facts. The “product” that the NHS delivers is the health of the nation, and while activity (such the number of operations and clinics) is part of this “product”, quality of care also forms a significant part. Yet because NHS income is constrained, it means that the productivity gains demanded from the health service are finance-driven rather than quality-driven. The costs of the NHS determine the productivity of the service, but the modest falls in productivity over the last decade are mainly due to the rise in costs of goods and services.

In simple terms productivity depends upon the amount of work performed for the costs involved, and it is typically expressed as the change from year to year. From this perspective, to increase productivity you can either produce more for the same money, or produce the same amount for less. But healthcare productivity is not this simple because the “product” is the health of the nation and so in addition to measures like the number of operations and clinics, NHS productivity must also measure the quality of the care provided. If the NHS does the same amount of work for less this may not result in more productivity if quality drops.

The Office for National Statistics’s most up-to-date productivity data for healthcare is for 1995 to 2009. Over this period NHS productivity fell by a total of 2.7%, or an average of 0.2% per year – not a massive decrease despite the cries of some politicians.

The change in productivity is shown in the following graph from the ONS report:

Growth in healthcare inputs and outputs, UK

ONS calculates the NHS inputs for each year – the costs of labour, goods and services, and capital – and from this calculates the percentage change compared to the previous year. The input growth bars are all positive showing that more is spent each year on the NHS (see my earlier blog on this).

Outputs includes activity like hospital inpatient, day case and outpatient treatments; GP consultations and prescriptions; dental treatment, sight tests, and ambulance emergency journeys. In addition, the outputs include a measure for the improvement in quality: post-operative survival rates, hospital waiting times and outcomes from primary care. The output growth bars are all positive showing that the NHS does more and quality improves every year. Indeed, ONS says that healthcare quality since 2002 has increased on average 0.9% per year.

The graph also shows the change of productivity each year, defined as the ratio of outputs to inputs. There are two significant dips in productivity: 2002 and 2003. These are due to a large rise in costs in those two years caused by much larger than inflation increases in labour costs. York Centre for Health Economics point out that the rise in inputs following 2001 were due to increased recruitment to satisfy the European Working Time Directive. These two years were accompanied by large rises in outputs too, although not as large as inputs and hence there were large falls in productivity.

ONS data for NHS productivity is freely available, but there are no publicly available figures for private health, so there is no evidence that using the private sector more will improve productivity. Further, when politicians compare the productivity of the NHS with the private sector they usually use the productivity of the private services sector which includes transport, finance, retail and recreation, ie totally non-comparable. There is another issue to consider. A healthy nation increases the productivity of the private sector, for example, through fewer days off for sickness. Such private sector productivity gains are not caused by the private sector, but by an improved NHS. When an allowance is made for this effect (called the private/public sector complementarity) ONS has found that NHS productivity has increased by between 0.9% and 1.6% per year between 1999 and 2004 (see Figure 9E in this document).

The positive growth in outputs show that the NHS is productive, but the problem is that the costs have grown faster. ONS say that the rise in inputs (costs) are mainly 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), which had an average annual change of 7.1%. Conversely, labour costs (which in 2008 made up 57% of costs) were more modest at 2.7% average annual increase. This is significant because politicians often associate productivity with labour costs, yet the ONS figures show that procurement is the problem.

Under the “£20bn efficiency savings” politicians insist that the NHS must achieve on average 4% increases in productivity every year for the next five years. This means that the productivity gain is finance-driven: the NHS must do more with less money. The graph above shows the significance of this challenge; the NHS has never achieved a 4% increase in productivity, not for one year, let alone for five consecutively. Significantly, no other healthcare system in the world has achieved this level of productivity gain either. In an interview with the Guardian, Prof John Appleby of the King’s Fund says that the private services sector can typically make annual productivity gains of 2%, further illustrating how difficult this challenge is. Furthermore, Prof Appleby doubts whether the NHS will provide the necessary improvements in quality over the next four years.

The fear is that the quality of the NHS – survival rates, outcomes, waiting times – will fall as costs are cut. The recent rise in waiting lists suggests this is already happening.

See also:

Richard Blogger writes about the NHS and social policy at NHS Vault.


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