Neil Griffiths and colleagues introduce a series of articles and an online hub on improving operational effectiveness

The challenges facing hospitals in the UK and around the globe are well documented. How do you deliver better care and value for money and maintain a sustainable hospital while shifting care out of the acute setting? What is the right balance between managing change and enhancing motivation?  

The McKinsey Hospital Institute is a global initiative established to partner with hospital leadership teams as they tackle these questions. In the first of a series of articles we describe the changing performance landscape of UK hospitals.

Although much of the focus is on commissioning, the provider sector is also going through dramatic changes.

There are 91 acute foundation trusts, and 73 non foundations in England. The rate of new and successful authorisations, which has been declining since 2004, has now slowed to a trickle, with just eight successful applications in 2009-10. However, the Liberating the NHS white paper states that all hospitals are expected to be FTs within three years, implying a dramatic unblocking of the FT pipeline. All chairs of non-FTs were asked to confirm their FT trajectory by the end of November.  

The outlook for existing FTs is also very challenging, with the average planned rate of cost improvement being much higher than the historical performance. 

FTs need to deliver at least 3.5 per cent cost improvement year on year for the next three to five years, but some plan double that. This is uncharted territory.

Hospitals need to deliver significantly higher cost savings and continue to improve quality with fewer staff, and in a period of approximately flat revenue. This has not been done before, as in recent years efficiency savings have been achieved through controlling cost growth.

Four actions

This new era will require reductions in resources and overheads and major structural changes. 

We see four actions which are needed: improved operational effectiveness; stronger boards; fixing structural debt, and easing the way for necessary reconfigurations.

Our series will touch on these, but the main focus will be on the actions to improve operational effectiveness. 

We estimate that around a third of non-FTs are near to FT readiness if their preparation (including board development and appointments) is appropriately managed. A further third could achieve FT status by delivering significant operational improvement, up to 5 per cent per year. 

A further third need to achieve even greater cost reductions, which will be a challenge at a time of constrained activity or further price pressure (which we see as the likely alternative if demand management fails). This implies transformational change, including some changes to the underlying configuration of services, and possibly the number of sites.

Modelling future financial performance in this way is only part of the story. Our hospital-wide diagnostic assesses performance across four dimensions; quality, operations, finance and organisational health, and also analyses market context and strategy.  

Important patterns

Looking at the picture across the whole of the NHS, we have found important patterns as to why some hospitals have managed to perform well across a range of dimensions, and continue to do so.

From our analysis of all hospitals in England, there are only five which demonstrate top quartile performance across each of the four dimensions (with the highest performing hospital in the NHS on each dimension being set to 100 per cent and the lowest to 1 per cent).

It is perhaps not surprising that these are all FTs, and have over 20 years’ FT experience between them. There are a further three hospitals that show top quartile performance in three of the four categories, with second quartile performance in the remaining category.

Only one of these hospitals has not achieved FT status.

Our analysis also shows striking variations across and within hospitals in the NHS.

Also important is engaging clinicians in leadership and providing greater autonomy through effective service line management.

Developing this internal improvement capacity is a prerequisite for a successful change journey in a sector where staff respond far better to change which is inspiring to them, rather than required of them.

Case study

Each month the McKinsey Hospital Institute tells the story of how the management team at a typical – though fictional – hospital tackles its challenges.

St Peter’s Hospital – part 1

Across the car park the fallen leaves swirled around the few remaining vehicles left in the darkness. Coming to rest against an elderly brick building they piled up in the light from a ground floor window. In his office, Andy, the chief executive was seated at his desk. His glasses sat on his forehead, his body was bowed in concentration and in his hand was a letter.

“You did her operation,” read the letter, “but you did not look after her.” “My grandmother deserved better and you should make sure it never happens again.”

Andy put the letter to one side and looked out of the window. As a big local hospital with teaching responsibilities, Middleworth delivered a pretty good service across most specialties. But “pretty good” said it all.  “Pretty good” was not excellent, and nor did it count as a very fact-based assessment in an era of increasing transparency of performance. Moreover, it was losing ground trying to be all things and he knew it could not continue.

In his optimistic moments Andy hoped that the Liberating the NHS white paper might help to unblock some of these dilemmas, by putting greater responsibility onto local GPs to make the case for changes which were needed to meet the QIPP challenge. 

In his darker moments, he wondered whether he had the stomach for the next five years at all. 

His chairman, who had an industrial background, had encouraged him not to think in terms of the CSR horizon at all but to “set out your stall for a 10 year journey”. “That’s how long it takes to really change a place like this. Don’t try kidding yourself, or anyone else.”

His thoughts returned to the letter and its simple truth. At the bottom it said “from Gemma Boswell (9 yrs)”. There was a choice. Andy began to type. As he wrote his response to the complaint letter his energy returned.

Ideas were bouncing around in his mind; balancing the need for productivity with the quality imperative, solving the configuration of services, setting out his own vision for the next 10 years and doing all of this with the support of his staff, local population, GPs and politicians.

As he completed the letter, he sat back and contemplated. The moment was now and he recognised he must capture that moment. He reached for the phone and dialled a familiar number. The chairman picked up at the first ring. “Chairman, there’s something you need to know.”

John Drew is a partner, Mark Goldman an MHI adviser and Neil Griffiths a senior expert at The McKinsey Hospital Institute.