John Appleby: The cost of reform

john-applebyAsked in 1972 whether the French Revolution had been good or bad, the then Chinese Premier Zhou Enlai said that it was “too early to say.” As it turns out this was not an extreme example of the Chinese long view: Enlai was apparently opining about events that happened four years previously—in 1968—and not that other (somewhat more momentous) revolution that occurred more than 180 years earlier.

So, the coalition government’s reforms of the NHS: good or bad? As part of our review of the reforms of the NHS in England, the King’s Fund has argued that the changes introduced by the 2012 Health and Social Care Act led to a top-down reorganisation that has been damaging and distracting; structural change that is complex and confusing; and a new, fragmented system of leadership that is seen as a barrier to much needed change in services—such as integration across care and organisational boundaries. In short, the reforms were likely to turn out to be a costly diversion.

But how costly?

The government estimates the total cost of the reforms to be in the region of £1.5 billion—mainly consisting of the financial costs of closing down abolished organisations, setting up new ones, and making redundancy payments. But it is argued that this has been offset by cumulative financial savings—from abolishing a managerial tier of the NHS and cutting the number of commissioning staff—of nearly £5 billion over the transition period 2010 to 2015 (and an estimated £1.5 billion per year thereafter).

Others have queried these estimates of both the costs (too small) and the savings (too big). And while estimating a net financial benefit from the reforms, the National Audit Office has questioned the detail of the government’s cost estimates.

Even with the net financial benefit, such organisational restructuring and reviewing of central budgets did not require the total reform or an act of parliament—the squeeze on funding would have been enough to ensure this would happen.

More broadly, whether the reforms have delivered improvements in productivity remains moot. As finances have tightened, the NHS has done well to generally maintain increasing trends in workloads. It is not surprising then that the latest figures from the Office for National Statistics suggest productivity across the NHS in the UK (not just England) for the three year period 2010 to 2012 has improved by 1.6% per year. This is more than the long run average of 0.7%—but is much lower than the 3% to 4% per year needed to close the funding gap.

What evidence we have on the costs and benefits of the reforms is patchy: some management costs incurred (and savings made), central budget savings (but with long term costs?), increasing hospital activity (but signs now of financial strain as a result), an increase in productivity (but not enough, and in any case occurring before the reforms were implemented), and some evidence that mortality has reduced (but to what extent is this attributable to the reforms?).

And there is the question of the opportunity costs—the value of the benefits that have been lost as a result of the changes. While scrapping primary care trusts has saved money, has this been without any loss in benefits? Similarly, has the loss of strategic health authorities and the establishment of the tripartite system leadership of NHS England, the NHS Trust Development Authority, and Monitor been cost free? Empirically it is hard to say, anecdotally the costs—such as lost and delayed focus on the main business of delivering healthcare—have not been insignificant.

John Appleby is the chief economist at the King’s Fund.

This blog first appeared on the King’s Fund website here.