More needs to be done for the NHS to increase productivity and complete the “Nicholson challenge”, writes Andy McKeon

The Francis report has pushed money well down the pecking order as quality takes first, second and third place.

‘The consensus is that NHS productivity flatlined over much of the last decade’

But as we come to the end of the financial year, some eyes will again turn to how well the service is maintaining financial balance, meeting the “Nicholson challenge” of £20 billion savings and raising quality.

We know that the NHS needs to increase productivity to make savings, raise quality and balance the books. The consensus is that NHS productivity flatlined over much of the last decade, even with “quality adjustments”.

The Nuffield Trust’s analysis in its The anatomy of health spending 2011-12 report, which looked at activity and labour, suggests productivity flatlined again in 2011-12. Changing the trend is clearly difficult, and not just for the NHS.

For example, labour productivity in healthcare and social assistance fell in the US between 1990 and 2010; the only sector of the American economy where it did so.

Diseconomies of scale

But if the overall message is a slightly depressing but realistic “more of the same” rather than “more for less”, the productivity analysis in the report highlights five points which ought to prompt wider thought and action.

First, productivity is lower in the north of England than the south. Or to put it another way, costs are higher in the north. This isn’t a product of higher deprivation in the sense that higher deprivation means more ill health and possibly sicker patients. The Audit Commission disproved that some years ago.

‘We are investing heavily in community services but little is known about the outputs’

The simple truth might be that greater per head spending in the north has led to higher costs and comparatively lower productivity. The finger might point at allocations policy as the root cause.

Second, the largest “hospitals” have lower productivity, and the difference isn’t explained by teaching and research responsibilities. The hospitals are in fact trusts which may have several hospitals within them.

Those advocating and considering mergers should pause over the diseconomies of scale they may bring over the longer term, as well as the short-term costs of disruption, before pressing fervently ahead.

Significant cash injection

Third, hospitals with relatively more medical staff have greater productivity. It is not dissimilar from the finding in a Nuffield Trust publication last year that those with a richer nursing skill mix might be more efficient. More pause for thought for those constructing workforce strategies and savings plans.

Fourth, some suggest NHS productivity may be growing prodigiously, but outside hospital. But this isn’t measured.

We are investing heavily in community services (though not primary care) but little is known about the outputs. The greater any transformation to deliver services outside hospitals, the less we know about what we get for our money.

‘Making savings without improving productivity is a very hard road to go down’

This isn’t a satisfactory state of affairs from anybody’s perspective. “Care closer to home” has been a theme for well over a decade, but we still don’t have much information about it.

Fifth, making savings without improving productivity is a very hard road to go down, with diminishing returns as non-pay costs are increasingly squeezed. It certainly isn’t a sustainable long-term strategy.

Unless productivity rises we are probably two, or at most three, years away from the point when all eyes will focus on NHS finances and the need for a significant cash injection. The debate then will be about whether the cash comes from taxation or some other way.

Andy McKeon is a Nuffield Trust trustee and adjunct professor at the Centre for Health Policy in the Institute for Global Health Innovation at Imperial College London. A version of this article also appears on the Nuffield Trust blog