NHS efficiency measures failing to boost staff productivity, Nuffield Trust report shows

The anatomy of health spending 2011/12: a review of NHS expenditure and labour productivity examines patterns of spending and labour productivity, drawing on the accounts data of strategic health authorities (SHAs), hospital and mental health trusts, and commissioning organisations going back to 2003/04. Data from the latest audited accounts is included in the report.

The independent health think tank’s analysis shows that:

• The proportion of trusts in deficit has risen steadily over the last four years. Last year 32 trusts out of 250 were in deficit: nine have reported a deficit for three years or more;

• The financing costs of private finance initiative (PFI) contracts remain a small proportion of total spending but have risen sharply since 2009, especially in London where they rose by over 70 per cent across just three financial years. Seven acute trusts now pay out more than five per cent of their total revenue through PFI;

We will overlook opportunities to meet the efficiency challenge unless we pay close attention to where and how the NHS spends money, and what we get for it Anita Charlesworth, report co-author and Nuffield Trust Chief Economist

• There appears to have been very little improvement in labour productivity across the hospital sector in recent years. Following a small improvement in 2010/11, figures for 2011/12 show a slight decline. This analysis of labour productivity presents a less optimistic view of the efforts to improve efficiency, with the NHS struggling to translate headline savings into labour productivity improvements;

• The data appears to indicate evidence of a north/south divide in labour productivity. Hospitals in the South of England, with the exception of London, have higher labour productivity than those in the North. Hospitals in the East of England and South West have better labour productivity compared to England as a whole;

• Workforces with larger proportions of doctors and other medically trained professionals, despite their higher labour costs, are strongly associated with higher labour productivity. Competition appears to have a small but significant negative effect on labour productivity, with trusts which come closer to monopoly performing slightly better;

• Larger NHS and foundation trusts tend to have somewhat lower labour productivity, suggesting the existence of diseconomies of scale. This finding implies that managers and policy-makers should carefully review the impact of potential trust mergers on staff productivity.

Looking at aggregated spending, the report shows that funding for community health services has increased rapidly in line with Government policy. Yet despite efforts to move care closer to patients, spending on hospital care has also grown rapidly at an average of 5.2 per cent over the last five years while spending on GP services has seen a real terms decline.

Commenting on the report, co-author and Nuffield Trust Chief Economist Anita Charlesworth said:

“With £2.8 billion in savings found from hospitals and other acute providers in 2011/12, the NHS is so far keeping pace with the need for savings. But this analysis suggests that underlying hospital labour productivity remains stubbornly stagnant.

"Our findings on variation among regions, and the success of workforces with more medically qualified staff, suggest ways in which this pattern might finally be broken.

“We will overlook opportunities to meet the efficiency challenge unless we pay close attention to where and how the NHS spends money, and what we get for it.

"This report shows clearly that, for all the rhetoric, money is still moving into hospitals, not out of them. At the same time, however, we should recognise the success of PCTs in moving some care into the community.

“The report highlights the unevenness with which national challenges are felt at a local level. It is clear that a minority of acute and foundation trusts are in consistent deficit, and they may be running out of options to resolve these problems.

"Policy-makers must ensure that appropriate support and management is in place to guarantee high-quality local services for patients.”

The report is the first in a series of annual publications and other activities from the Nuffield Trust that will examine the financial performance of the NHS in England over the coming years.

The programme is supported by PwC and McKesson. By conducting this analysis the Nuffield Trust aims to become a centre of expertise and data on the financial performance of the NHS.