Fact Check: has turning the NHS into a market cost £10 billion?

It has been estimated that entrenching market structures in the NHS, for example through tendering, bidding and contracting to the private sector, costs over £10 billion a year. Why does the prime minister not think that that money would be better spent on patient care?

Caroline Lucas, Green party MP for Brighton, at prime minister’s questions.

The £10 billion figure Caroline Lucas cites here is based on data contained in a 2010 House of Commons health committee report on commissioning. The report cites figures that suggest that “administration” costs of running the NHS amounted to 5% of total NHS expenditure in the pre-market days of the 1980s, rising to 13.5% more recently (rounded up to 14% elsewhere in the report). Deducting one figure from the other, the Green Party concludes that this means 9% of the budget (which they take to be £120 billion) is spent on “running the NHS as a market”, equating to approximately £10 billion.

To find out whether the market has cost £10 billion, there are two steps to consider: first, what are the costs of running the NHS? And second, have these costs increased since the introduction of the market?

It is notoriously difficult to estimate the management and administration costs of healthcare systems. This may explain why, in contrast to the figures cited by the Green Party, other sources present management costs at much lower levels. The NHS Confederation claims that “in 2008-9 the management costs of the NHS had fallen from 5% in 1997-98 to 3%”. The devil is in the detail and much of the detail depends on the definitions used to count the staff working in “management” and “administration”.

The source cited in the health committee document reveals that the figure of 13.5% is drawn from an unpublished 2005 report by the University of York’s Karen Bloor and colleagues, which looked closely at the national workforce data in order to attempt to capture fully the staff who could be categorised as working in administrative and management functions in the NHS. Though unpublished, the report can be requested from the authors.

The national statistics on workforce include a category called “NHS infrastructure support” which includes “administrative managers and senior managers”, the latest figures for which show 37,474 managers (defined by role) at November 2014. These are the figures used for estimates of management costs at the low end of the scale as described by the NHS Confederation and indeed, manager numbers have been falling over recent years.

Yet, this category of “managers” excludes many other administrative staff who are working outside the central infrastructure. In particular, there is another category of staff called “support to clinical staff” which, in addition to staff who are involved in the direct care of patients (such as healthcare assistants and nursing auxiliaries), includes clerical and administrative staff – 90,716 at November 2014. The headline figure also excludes the 61,223 management and administration staff who were working in GP surgeries in 2013. Aggregating all these staff together and assigning estimates of salary costs, led the authors to the higher figure of 13.5%.

Any calculation therefore hinges on the type of staff costs included and this is complicated by data availability and definitions. So rather than being a measure of the difference between pre-market and post-market NHS, the higher estimate of 13.5% is actually just a more comprehensive estimate than earlier ones.

It is fair to assume that more market-based systems are indeed likely to cost more to run than administered systems, partly because they involve transactions between purchasers and providers, which will increase costs associated with contracting – such as measuring and monitoring provider performance.

But there is no way of knowing what is the “right” level of running costs for a healthcare system and, in many ways, the question is the wrong one to ask. The main issue is whether the introduction of market-based incentives has produced sufficient extra gains in terms of the performance of the NHS, to outweigh any extra costs incurred in running the system. This is a much bigger question which is even harder to answer than what those costs actually are.

Verdict

Attributing £10 billion of expenditure to the extra cost of running the NHS as a “market” is not strictly true. While the management and administration costs of running a market-based system are undoubtedly higher than those in an administered system, the comparison made in the claim does not actually measure this difference.

Review

The verdict is right. As the commentator points out, the figures used by Caroline Lucas were extrapolated from statistics that do not reflect the incremental cost of running the NHS progressively as a market as opposed to a strictly public-provided service.

First of all (fortunately) the NHS is not really run as a market, at least not as of yet. The quasi-market incentives introduced over the years in the NHS (payment by results, budgets to GPs, yardstick competition, and so on) have mainly been meant to induce competition in quality, rather than cutting costs, and to reduce wasteful use of resources induced by retrospective payments. So, they have aimed to increase the health gains achievable given a limited budget.

There are many pros to introducing these incentives – as long as the pros are corrected for, for example by making sure that those who benefit from increased information on provider quality aren’t just those who are well-off, but this has not been a priority.

Although there are reasons to worry about the total NHS budget and the potential introduction of the private sector to substitute rather than complement NHS provision given recent similar experiences in other countries like Spain, the argument used by Lucas in favour of a classical public provision of healthcare was not chosen soundly and the statement that the NHS is run as a market is, for the moment, very stretched.