Fact or Fiction? Reconfiguring hospital services will deliver significant savings

This blog is part of a series called ‘Fact or fiction?’, where experts from the Nuffield Trust give their take on the data and evidence behind some of the current perceptions of what is happening with the NHS.

NHS hospitals are under mounting financial pressure. A common belief is that the reconfiguration of hospital services, primarily through rationalising services across sites and shifting services into the community will help resolve these pressures.

It is a solution that Monitor hopes will bridge a significant element in the forecast financial gap: “The evidence suggests that reconfiguring services and integrating care more effectively across providers could yield productivity improvements in the region of £2.4 billion to £4 billion by 2021.”

But how realistic is this hope? What does the evidence tell us?

What we know

Reproviding services is expensive

The greatest potential savings from reconfiguration come when services from one hospital can be absorbed into the available capacity at another and a site is fully closed. Yet many English hospitals and their specialist units — such as maternity — are running at full capacity. The only way to accommodate new activity is to build additional facilities that may cost more than the facilities they replace. Savings are further reduced if services continue to be provided on the old site, for example, providing an urgent care centre, a midwife-led unit or paediatric assessment unit to support local access to services.

It is also popular to assume that preventing hospital use, through investing in community-based care, will save money. But, again, there is little evidence to show that community-based alternatives to hospital care will cost less. And there is some evidence that community-based services can actually increase demand, as they identify more patients in need.

In both cases there are likely to be significant transitional costs in addition to the capital costs of new build. For example the proposed reconfiguration of services at Mid Staffordshire are expected to cost in excess of £200m.

Reconfiguration doesn’t always mean fewer staff

Alongside the financial drivers for service reconfiguration are important workforce and quality drivers. Many hospitals are motivated to reconfigure services because they do not have enough doctors, particularly as they try to move to seven-day consultant-delivered care. For example, two hospitals may want to reconfigure A&E services onto one site in order to achieve a critical mass of staff to deliver 24/7 care.

This will limit savings from medical staff. People may anticipate savings in junior doctors as they only have to provide junior doctor cover on one site instead of two. However, the number of patients in the centralised service will be similar to the combined numbers of the two sites. If the number of junior doctors reduces significantly, quality could be threatened as the workload of already hard pressed junior doctors expands.

Bigger doesn’t mean cheaper

The available evidence suggests that the optimum size of a hospital in terms of releasing economies of scale is only 200 beds – about half the size of a small District General Hospital (DGH) – and that when a threshold of about 650 beds is reached diseconomies of scale begin. There is also no clear evidence to suggest that, as the range of services a hospital offers expands, the cost per unit reduces (so-called economies of scope). Recent analysis by Monitor, concerned that smaller hospitals may be financially disadvantaged, found no clear correlation between trust size and financial performance. Bigger is not necessarily cheaper.

Reconfiguration can lead to financial failure

Finally, the reconfiguration of clinical services can present a governance and performance risk. The Audit Commission found that a large scale reconfiguration could be a significant contributory factor in driving financial failure. Something they attributed to the board’s “eye being off the ball” as a consequence of their absorption with the reconfiguration.

Fact or Fiction?

A recent review of the evidence underpinning the reconfiguration of clinical services found “the evidence to support the impact of large-scale reconfigurations of hospital services on finance is almost entirely lacking”. The evidence on hospital mergers also chimes with that; findings suggest they rarely generate the savings or productivity improvements anticipated. More depressing still, given the assumptions made in the Five Year Forward View, there is little evidence to suggest that the integration of services will generate significant savings.

And as we have seen, reconfiguration can also raise costs, particularly if it is addressing issues of suboptimal staffing levels.

But it’s not all bad news. While the evidence shows that it is hard to deliver savings from the reconfiguration of services, it is not true to say that the reconfiguration of services never delivers savings. The reconfiguration of stroke services in London has reduced the average length of stay and average cost per patient as well as improving outcomes. The takeover of Trafford Hospital by Central Manchester Hospitals and the subsequent reconfiguration of services helped resolve an underlying deficit at Trafford Hospital of £19m per annum.