30 years after Barbara Castle, the lessons ministers fail to heed

The NHS deficits currently preoccupying government are an unintended product of their own policies. Their increasingly frenetic and all too often evidence-free reforms have been funded by a fifty per cent increase in funding, with £80 billion now being spent on the NHS.

Healthcare is labour intensive, with 70 per cent of expenditure funding staff. The pay settlements in 2004 for GPs and consultants were exceedingly generous. The Department of Health’s bid for funding of the consultant contract made no mention of productivity gains, thereby increasing pay with no quid pro quo for taxpayers. The GP contract was even more generous providing exemption from out-of-hours care and targeted payments (the Quality Outcomes Framework) for many services that all GPs should have been providing and many already were.

These settlements, together with pay increases for other workforce groups due to Agenda for Change, cost billions with little observable gain in productivity.

One asserted rationale for such generosity was labour retention and recruitment. In the early stages of the Labour reforms there were workforce shortages and, as a consequence, government increased investment in training and education and recruited staff vigorously from abroad.

This period of training-feast led to large increases in the supply of trained personnel. So much so that planned NHS recruitment targets were exceeded by managers whose jobs depended on the achievement of government targets.

This boom in workforce recruitment is now being reversed as newly-qualified nurses and associated professions find themselves unemployed. A 30 per cent increase in medical school entry together with training reforms (Modernising Medical Careers) and an influx of well-trained doctors from recent entrants to the EU seems set to create a surplus of doctors.

The workforce boom-to-slump cycle is now being worsened by government plundering of education and training budgets in order to reduce declared NHS deficits. The combined PCT and hospital deficits in 2005-6 were £1.2bn. This was ‘adjusted’ down to less than £600m in part by transfers from budgets ‘ear-marked’ for nursing and medical schools.

The expenditure inflation created by pay and workforce policies have been complemented by uncosted waiting-time targets for elective surgery and A&E and uncostable large investments in National Service Frameworks to improve volume and processes in heart, cancer and other areas of care.

The ‘generosity’ of the National Institute for Clinical Excellence in not rationing out new technologies of marginal cost effectiveness increases funding pressures further. The Whitehall belief was that all these policies could be afforded when funding was growing by over 7 per cent per year.

Such policy changes have increased public expectations and increased patient demand. However, policy-makers have failed to create NHS capacity to control demand. Indeed it has exacerbated the problem by funding hospitals with payment by results, which incentivises hospital activity.

Hospital care has become more expensive due to increased wage costs and hospital tariffs incentivise increased institutional activity despite the rhetorical desire of successive governments to create a primary care-led NHS.

An increasingly desperate government has only latterly recognised that well-documented inefficiencies in the delivery of care need radical reform. Secretary of State Barbara Castle published Priorities in Health and Social Care in 1976 which documented both the need to reduce hospital length of stay and advocated more day surgery. Such arguments are now being reiterated by the NHS Institute for Innovation and Improvement which has discovered that Castle’s advice from 30 years ago is yet to be followed up.

So the reforms poured money into the NHS in seven years of feasting. Now we are set for seven years of relative funding famine. However the difference is that the reforms may have introduced expenditure inflation into what has been traditionally a cash-limited system. The government’s tardy recognition of the scope for improving productivity with radical expansion of day surgery and reduced lengths of stay has been an exercise in discovering the cart after the funding horse has bolted.

The manifest inefficiencies in the NHS — replicated in all healthcare systems, public and private, worldwide — should have been targeted at the outset and the increased funding used to mitigate them.

So what should be done now? All healthcare systems are inefficient and give poor value for money. Researchers have highlighted unexplained variations in clinical practice and the scope for efficiency gains for decades. There needs to be a sea-change in translating evidence into practice. Medical leadership is poor and NHS managers, blinkered by their focus on Soviet-style command and control performance management, must be induced to change habits of a lifetime by managing in relation to evidence and quantitative data.

Such vigour can produce improved care at lower cost. Take for instance day surgery for hernia repair. The first article showing merit in this technology was published in the Lancet in 1955 and in the same decade advocacy of reductions in length of stay for other conditions was being substantiated with evidence.

Translating such evidence into practice enables hospitals to close wards and save on staff whilst ensuring the delivery of good care. Whitehall — from Barbara Castle to Patricia Hewitt — has recognised this, but has failed to incentivise changes which improve patient care and reduce tax burdens.

Labour abolished GP fund holding in 1999. Subsequently it has been shown that giving GPs budgets to purchase primary and secondary care reduced elective hospital activity by a small but significant percentage. Desperate now to control hospital demand incentivised to do more by tariffs, Labour has reintroduced and rebranded GP fund holding as Practice Based Commissioning (PBC). However the incentives in PBC are as yet muted and with GPs seeing little immediate gain in it, especially after their large pay increases in 2004. They are unlikely to curb demand unless their wallets are sufficiently augmented.

In the meantime government is hoping that Primary Care Trusts (PCTs) will become better commissioners, curbing the tariff-induced activities of hospitals and shifting demand to primary care. These recently reorganised entities are unlikely to impact swiftly even though departmental advice is incessant in emphasising their role in setting limits on who gets into hospitals.

This work can only be carried out efficiently if patient reported outcomes are measured in terms of whether they feel better and experience better mental and physical functioning pre- and post-care. Such outcome measures were advocated by Florence Nightingale, but have been ignored in America and Europe even though the means to measure such effects have existed for several decades.

So what can government do with the muddle they have efficiently produced despite the best of intentions?

Firstly, they need to improve the focus on translating evidence into practice as Barbara Castle advocated three decades ago.

Secondly, this should be complemented with the use of available activity data to make providers more transparent and accountable: the evidence about avoidable paediatric mortality at Bristol Royal Infirmary, where a cardiac surgeon continued to use a technique that killed 30 children, was there in the data, but sadly identified only retrospectively due to the indolence of managers.

Thirdly, this activity data should be augmented with patient reported outcome data, for if the customers identify no benefit in their care why should PCTs reimburse hospitals?

Incentivising such worthwhile changes requires a radical change in Whitehall policy-making and delivery. Hospital and PCT chairs should appraise their managers in relation to these requirements. Hospital managers should use the new contracts to insert activity and outcome data into consultant appraisal, job planning and the award of generous performance related pay (or clinical excellence awards). GPs should be incentivised to collect outcome data with earmarked payments in their contracts.

The lessons from the Blair reforms are stark. As feast turns to financial famine in the NHS, it is clear that increased funding has solved little. Government must resist the Pavlovian response to shift the deckchairs on the Titanic with worthless redisorganisation of structures and emphasise the development of more efficient clinical and other management practices based on the sophisticated and incentivised use of data.

Recent poor policy making has not only missed opportunities to improve efficiency but also created expenditure inflation. This ensures political conflict as those who care for the NHS struggle vigorously to save it from the damage inflicted by its well meaning friends.

Alan Maynard is Professor of Health Economics at the University of York and Adjunct Professor, Centre for Health Economics, University of Technology, Sydney, Australia. He is also Chair of the York NHS Trust.