McKinsey cost-saving proposals focus on waste in acute sector

3 September, 2009 | By Sally Gainsbury

NHS hospitals in England are rife with waste and inefficiency, consultants McKinsey and Company have told the Department of Health in a confidential report, seen by HSJ.

It says up to £2.4bn could be saved if hospitals with the lowest levels of staff productivity pulled themselves up to nearer the average performance. The management consultants argue that doctors and nurses in the worst 10 per cent of trusts deal with less than a fifth of the volume of patients that those in the best 10 per cent handle.

It’s not always clear from this sort of analysis how you make these savings cashable. If you shut a ward you still have the overheads because you still have to pay for the building
NHS Confederation policy director Nigel Edwards

As well as staff productivity, the report identifies inefficiencies in the patient pathway. For example, it sets out how around 40 per cent of patients in a typical hospital do not need to be there at any one time. The biggest causes were delays in the patient receiving hospital tests or therapies, and a lack of more suitable care facilities in the patients’ own home or community.

It says up to £200m could be saved a year if unnecessary diagnostics were cut and another £600m if new and follow-up outpatient appointments were limited. That analysis is based on cutting up to 13 per cent - or just under 4 million - of the 29 million follow-up outpatient appointments every year.

A further £700m could also be found if procedures with “limited clinical benefit” - such as tonsillectomies, varicose vein removal and some hysterectomies - were decommissioned.

NHS Confederation policy director Nigel Edwards said the report represented a “top down” approach, which was often a good starting point for analysis, but warned it was beset with “dangers”.

He said: “It’s not always clear from this sort of analysis how you make these savings cashable. If you shut a ward you still have the overheads because you still have to pay for the building.”

However, the McKinsey analysts suggest up to £8.3bn of acute trust estates could also be “freed up”. Some trusts’ annual income exceeds their fixed assets value by as much as four times, but McKinsey has found many are not making economic use of all their assets and so their annual income does not even cover the value of their assets.

McKinsey has also recommended NHS trusts with private finance initiative buildings should renegotiate their interest rate charges - taking advantage of the fall in rates from 5.5 per cent in 2008 to 0.5 per cent this year. It says that up to £200m could be saved a year if trusts did this.

See next week’s HSJ for more analysis and reaction to the McKinsey report

Readers' comments (11)

Anonymous | 3-Sep-2009 12:48 pm
Perhaps Labour want the NHS totally privatised, is this their underlying agenda?
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Anonymous | 3-Sep-2009 1:52 pm
So who is going to magic-up "more suitable care facilities in the patients’ own home or community"? And who is going to pay for such, when local councils are cutting back and reducing the availability of such facilities?
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David Perton | 3-Sep-2009 3:23 pm
I wonder if the under-performing 10% also have the longest waiting lists. Becoming more efficient will simply allow them to catch up with that.

Efficiencies always have to be clinically lead bottom up and then best practice spread.

I wonder if they have taken into account technological improvements and the aging and ailing population thus requiring more treaments in thier job cut calcualtions?
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Anonymous | 3-Sep-2009 4:04 pm
40% of trauma patients are certainly cared for in the wrong environment. Being unable to move elderly patients who have had surgical fixation for a fractured neck of femur to an appropriate ward often leads to the bed on an acute trauma ward being blocked for weeks.

The busy acute environment of a trauma unit is not conducive to a good recovery for these patients.

Nursing staff are constantly providing ongoing social care for these patients when, in fact, they should be allowed to concentrate on the acute care of patients.

I wonder if the government are going to take a long hard look at this problem and take the appropriate action necessary to resolve this.

Many elective patients have their surgery cancelled because elderly patients are blocking beds and there seems to be little action being taken to resolve this situation for the benefit of patients.
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Luke Herbert | 3-Sep-2009 9:46 pm
We had management consultants at our hospital. They showed how we were wasting money. The essential methodology was: take the average length of stay for a condition. Look at the individual lengths of stay for cases at our hospital. Discard data from any length of stay less than average. Add up all the lengths of stay over the average. Use this number to remove an equivalent amount of surplus capacity. Collect large fee.
If you don't understand why this is wrong take a course in basic statistics. Or become a management consultant.
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Anonymous | 3-Sep-2009 10:32 pm
Waste?? Cut the number of Assist Directors and Directors; cap the salaries of the top; get rid of the less useful roles that does not directly benefit patient care eg Equality & Diversity czars; ensure those collecting big bucks do a full days work and effectively; deal with the laggards and lthe lazy and the cruel. Patients deserve better; staff colleagues deserve better.Keep X-ray dept, labs, clinics and theatres open longer; make sure GPs and dentists are not fleecing the NHS and paid twice for their services; make sure that quality work is provided instead of delegation or called skill mix, to health care assistants.
Do we need to fund the superflous - the fertitlity treatments, sex change, plastic surgery for the vain; self inflicted obesity treatment; irresponsible alcohol abuse; irresponsible and neglect at family planning and so on......
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Barbara Allen | 4-Sep-2009 9:20 am
The previous comments are right. When you get accountants working out what is or isn't efficiency you end up with health unit costs, all a financial abstraction.

How did they come to this conclusion?
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Anonymous | 4-Sep-2009 9:35 am
I'd like to present an alternative point of view to the tone of many of these comments.
First, I have no connection with McKinsey, am a UK tax payer, use the NHS, admire many of the people in it and have no axe to grind.

I am disappointed at the reaction to this report. Many of it's recommendations seem eminently sensible and based on what seems a logical approach. In most organisations a report that showed how to improve results and reduce costs by such magnitude would be welcomed enthusiastically. Why in the NHS does the "supplier" voice seem so loud, when the conversation should be between customers (taxpayers and patients) and management?
It is hard to believe the conclusions came as a surprise to the commissioners of the work; the hasty and public rejection shows a deeply flawed management process.
It is also lazy to give an example of sloppy practice by consultants and use that to suggest rejecting this report. McKinsey is probably the world's top consulting firm, hires the best people from the world's leading university and business schools and invests heavily in staff development. It is highly unlikely that sloppy (invalid) statistical techniques are core to their process. To suggest so is typical of the unwillingness to learn from other industries that besets the NHS.
As for the paranoid fear of privatisation, everyone is entitled to their opinion of the best ownership structure, but let us not forget the private enterprise is what has transformed our living standards in the last 250 years. And before anyone points to the failures which caused the financial crisis (a) look at the numbers (gdp, life expectancy etc.) over a long time period and (b) watch how many governments make a profit on their bank bail-outs in the next few years (Switzerland and the US already in the black).
Ownership notwithstanding (and there is clearly a case for public ownership of a major healthcare provider), that is no reason not to look for every improvement opportunity going and to learn as much as possible from other sectors of the economy.
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Anonymous | 7-Sep-2009 1:12 am
There are clearly areas of waste in the NHS that need to be tackled and it is foolish to say that NHS staff have nothing to learn from elsewhere. However, many of the negative reactions to the report may stem from previous experiences of management consultants such as McKinsey. The problem is that their reports seem very reasonable and sensible and can easily convince highly educated and intelligent people - as long as the readers are not intimately acquainted with the workings of frontline medical care. And this is understandable. They are intelligent professionals who know how to make their reports sound professional. Unfortunately, some of the management consultants I have come across do not spend enough time understanding the issues around clinical care - they are not healthcare professionals and they cost so much that it is difficult to give them the time necessary to gain a full understanding, no matter how intelligent and quick they are at grasping the principles. One of the fundamental issues that might lead to a negative reaction to this report is in the first paragraph itself. The problem with considering healthcare in similar terms as a profit making business such as Tesco is that the underlying premises are very different. Healthcare is about service - not profits. The reason that the public is willing to pay to see Homoeopaths and Herbalists in spite of many years of evidence showing no proof of benefit (note: I am not saying that there is any proof of harm) is that they are willing to pay to see someone who will listen and pay attention and - and this is the important bit - give them time. When we get people like McKinsey coming and saying that those hospitals seeing fewer patients are more inefficient, this has to be questioned. It is difficult to find a hospital in the country where doctors are just sitting around waiting for patients to turn up. It is quite possible that those hospitals who are seeing fewer patients are actually providing a better service. A consultant who gives four patients an hour each is likely to be providing better quality care (as measured by patient satisfaction) that one who is seeing 8 patients at 30 minutes each. There are data to show this is true (sorry, I can't remember the references). However, in the world of McKinsey, the first consultant is inefficient. I agree with Anonymous (posted 4 Sep, 9.35 am) that the "customers" should have a say in their healthcare. Previous studies of customers have shown that above all else they want to see doctors who will have time for them. Unfortunately, the gloss of a McKinsey report hides the fact that this is just what they want to stop doctors from giving their patients. McKinsey certainly have the glossy answers for short term budget holders, but just because they are the world's top consultancy does not necessarily mean that they have the right answers for healthcare and this report fails to convince me - so far. Having said all that, there are many areas where waste should be avoided. Delays in waiting for investigations is a typical example: poor staffing levels in diagnostic services cost far more than they save. Anonymous | 3-Sep-2009 1:52 pm asks how community based care can be organised - there are good examples of this sort of care around and this is probably an area that can be usefully improved upon.
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Simon Knighton | 7-Sep-2009 11:40 am
Simon Knighton, CEO, EPP CIC

NHS Budget Cuts Demand New Thinking

Cuts to NHS funding seem inevitable in the face of the current economic situation, particularly when coupled with the Government’s massive investment into the banking system and economy. So in that regard the findings of this latest report come as little surprise

Savings will have to be made and there are no doubt many areas within the NHS where inefficiencies can be addressed. But it is the manner in which this issue is addressed which is crucial and enforced job cuts and top down budget cuts as suggested in this latest report are simply not the way to address this issue.

Instead they need to start by agreeing the desired outputs of the NHS and then designing the service which can best deliver them. This is what all politicians are afraid of doing – yet it would most likely yield the efficiency needed.

The other aspect which needs to be addressed is patient responsibility and education, free courses such as those offered by EPP CIC, enable people to take control of their health and increase their confidence which in turn leads to less reliance on health and social care and reduced costs.

By looking at these alternative solutions not only can the NHS save money it can maintain its already high standards and ultimately provide a better and more efficient service.

www.expertpatients.co.uk
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Anonymous | 11-Sep-2009 5:27 pm
Has any one commenting on the Mckinsey suggested cost cutting looked at the health service in a detached manner? Probably not. Have they spoken to a wide variety of frontline and back office staff? Probably not. Have they looked at the quick wins and the low hanging fruit? Probably not.
Has any one looked at the most expensive resource within the NHS that could be made to work more efficiently and effectively? Have you not guessed yet? It is the medical workforce. 30,000 consultants at an average cost of £100k per person. And ofcourse what about the GPs? Are they really good value for money? If all they are going to do is prevent referrals, why not appoint a senior nurse? A nurse will cost at least 50% less and will probably examine the patient, talk to her and even draw blood for tests! Is a 10% reduction possible? I am not suggesting a reduction in the workforce, however, have we examined if those who get paid the money actually put in the effort comensurate with the remuneration? If one looks at the diaries of some of the doctors one will be amazed! Many of them claim to work 60 hour weeks, week on week since the times of Adam & Eve (ok I admit I have exaggerated the timescale). On top of that they find time for private practice and other commitments. Has any one tried working those hours continuously? What is the effect on the brain? It turns into mush after a few weeks. Do we want our doctors to be zombies? Certainly not! So what is the solution? If something appears to be too good to be true, it is probably not. All the doctors claiming to be working 60 hrs a week in the interest of patient care is a myth!
What some one in the DH, and in the Trusts needs to take the bull by the horn. It is time we called a spade a spade. Re examine the consultant and GP contracts (nothing should be sacrosanct in an age of austerity). If found necessary, take away the extra payments. If need be hire qualified doctors at non-consultant grades (after all they will provide all the service and cost atleast 30% less on an average). Certainly it is worth cutting the excessive wages of the non performers. And do not believe in the propaganda that there will be a huge exodus of doctors to the USA or down under or to the middle east! Just do it!

Cut the flab and the body will recover. If you do not cut the flab, the heart will fail!
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