NHS faces job cuts as financial crisis deepens

There is a distressing lack of context in the current debate about
the state of the NHS. Financial deficits, job cuts, and professional
whingeing are all at record levels (at least according to headline
writers). Some even allege that he system is close to collapse.

Even the debate about how the NHS is funded has been resurrected,
driven--apparently--by the idea that demand always exceeds supply in a
publicly funded system.

It is, however, possible to see the current problems as the birth
pangs of real reform and a sign that reform is starting to work to the
long term benefit of all. If this is right, then panic and putting reform
on hold would be a catastrophe for the system. To see why it is vital to
look behind the current headlines and see their historic context.

Historically NHS trust accounts have contained little useful
information on anything. They existed more to tick a statutory reporting
box than to provide useful guidance on performance or the state of the
hospital. It has rarely been a good thing to declare large surpluses
(after all if you didn't need the money this year you would likely lose it
next year) and never good to declare deficits (though the perverse
incentives tend to send the money in the direction of the inefficient
units with deficits who can argue they "need more funding"). So trusts
expended great efforts to achieve the political goal of "balance" and none
to achieve the useful goal of reporting something relevant to management
decision making. PCTs and SHAs connived in this by moving money around the
system to avoid as far as possible significant surpluses or deficits.

In the private sector, company accounts have a role (though an
imperfect one) in informing mangers, investors, and governments about the
real state of the business. Regulation and audit prevent serious
manipulation by unscrupulous managers (which is why Enron’s bosses are in
court). Good companies hold private accounts (management accounts) that
help them understand the performance of their operations so they can fix
or improve them.

The point of this is that the current deficits may be a welcome sign
that the accounts are starting to move from being a political pretence
that all resources are used equally well to an honest admission that some
hospitals are better managed than others. We already know that this is
true for other reasons. For example, the reference cost exercise behind
tariff setting (search for “reference costs” on the DH website for the
data) shows that the most efficient hospitals can be half the cost of the
worst for exactly the same procedures (and this is true even when
unavoidable regional cost differences are taken into account). In the
private sector such enormous differences would lead to rapid action to
improve the operations of the poor performers.

So the fact that some trusts are now declaring big deficits and are
taking actions to sort them out such as shedding staff is a welcome sign
of honesty not of crisis. The fact that badly managed and expensive
hospitals are cutting staff is sign that the right management actions are
being taken at last. If the efficient and well-managed hospitals grow
(perhaps by employing some of the staff shed) and the inefficient shrink
or improve then the same NHS expenditure will deliver more healthcare.

Well organised hospitals deliver both higher quality care and more
efficient use of government money than their badly managed rivals. The
degree of improvement of NHS productivity that could be achieved if the
worst moved even halfway towards the best would be enormous. In fact it
would be so big that we could stop worrying about the other big debate of
the moment the idea that demand must always exceed supply in a publicly
funded system.

If we get the incentives right and don’t succumb to panic because of
the short term pain, the prize could be a rapidly improving NHS where
quality and speed of care just keep getting better.

Competing interests:
Management consultant in health