Ian Kirkpatrick: Quest for efficiency won't cure all the ills of the NHS

GOVERNMENT plans to reform the NHS have left some people feeling rather ill.

Since the proposals were unveiled last summer, critics have been lining up to cast doubt on how much they will cost to implement, asking how much disruption they will cause and whether core services will become fragmented at a time when overall government spending is being cut.

They have questioned whether GPs will be willing or able to take on the increased responsibility and workload associated with their new commissioning roles and expressed scepticism about whether the proposals will deliver improvements in the quality of services on the front-line.

But what has gone relatively unchallenged until now is the startling claim that the "new" NHS will be more efficient and need fewer administrators and bureaucrats.

The White Paper said a 30 per cent saving in administrative costs and a 45 per cent saving in management costs would be delivered in four years. Bold claims indeed, and the political rhetoric that has accompanied it has been equally provocative. On the campaign trail last May, Nick Clegg said: "We now have more bureaucrats and administrators in the NHS than we have hospital beds."

But let's take a step back and ask two questions – is the NHS actually management-heavy? And what is the evidence that the Government's plans will result in fewer managers and more efficiency? Statistics show that the number of managers in the NHS has grown in recent years. The King's Fund, an independent charity, estimates that total administrative and management staff (including central functions such as HR, Finance and IT) in the NHS in 2009 was around 13 per cent of workforce.

But you could argue that is not actually high given that the NHS is by far the largest employer in Europe with 1.4 million employees.

The proportion of managers in the workforce in the UK as a whole is 16 per cent, so by this metric the NHS is, if anything management-light.

The idea that the NHS is a "bloated bureaucracy" also seems misplaced when you consider overall administrative costs in the NHS as a proportion of total expenditure.

This is currently around five per cent – among the lowest in the developed world.

This means overall administrative costs are significantly lower than in the US, where it is estimated to be around 20 per cent of total expenditure, and where administration and clerical staff account for between 25-30 per cent of the total health workforce. What about the claim that a fragmented, market-driven system will be more efficient, with fewer managers and administrators?

Notwithstanding the rhetoric of cutting red tape and worthless targets, the White Paper proposes a complex regulatory framework, with over 150 new quality standards.

As before, ensuring these demands are met will occupy the time of organisations responsible for commissioning and providing health care services. Far from being buried, the target culture will remain very much a reality as will the need for managers and administrators to service these demands.

It's true that markets can generate efficiency through competition. But it is also true that they involve what "transaction costs" as well.

These hidden costs are things like writing and monitoring contracts, marketing and advertising services, paying for capital, insurance, invoicing and accounting. Taken together they can place a heavy administrative burden, and it is partly for this reason that the costs of the US – market-based – system are so high compared to the UK.

The healthcare systems in the UK and US are of course different and comparisons between them are not straight-forward. In the US, costs are generated by having numerous health insurance funds and things

like marketing and new product design. But it's likely that as with so many things, the UK will follow events across the Atlantic and, with the proposed changes we will see a larger number of organisations involved in buying and selling services.

The White Paper also makes clear that services in the future should be delivered on budget. This sounds like a good thing, and in some ways it is. But it is important to remember that there is a degree of flexibility in the current system – with a degree of "give and take"– which works well when you consider that the NHS isn't an ordinary service provider. The NHS is a public good, existing to make people better and save lives, in these situations, balancing the books simply can't be the top priority.

There are then good reasons to question the Government's optimistic claims about efficiency savings and reduced overheads. The reality is that, even without all the massive costs associated with implementing the change, the new market-based NHS is going to be a very expensive business to run. The White Paper talks about "radically simplifying the architecture of the health and care system", but ironically the proposed changes seem to point to a far more complex system.

More importantly, far from reducing the need for managers and administrators – if the US experience is anything to go by – the demand for these services will be greater than ever.

As taxpayers, we will need to get used to the fact that for every pound we pay towards healthcare, administrative overheads will account for a larger, not smaller, cut.

The irony of this will not be lost on the critics or indeed on those who simply ask – with good reason – what any of this has got to do with improving patient care?