Health deficits are symptoms of a deeper failure
Tony Bliar once remarked that Labour's record spending increases and reform were the last chance for the National Health Service. If they did not work, the prime minister warned, waiting in the wings were politicians who would dismantle the NHS. The reality is somewhat different. There is no ideological difference between Labour and Conservative. The real difference, in Rumsfeld- speak, is that Labour ministers know what they don't know while the Conservatives don't know what they don't know.
While the opposition is in the foothills of a policy review, ministers are grappling with the toughest challenge in public sector management: how to transform the NHS from a relatively simple but obsolete supply-constrained model to a patient-driven, demand-led one.
Conceptually their vision is right; but the design capability and implementation plan to realise this vision have been missing. The Department of Health began implementing a partially designed system, leaving the rest to be worked up as it went along.
The results are reminiscent of attempts by Mikhail Gorbachev, the former Soviet leader, to reform the Soviet economy. Financial deficits, overspending and tighter rationing are symptoms of underlying systemic failures.
Midway through the five-year implementation of payment by results - under which hospitals and other providers are paid for what they do, rather than simply for being there - the absence of proper commercial costing systems means cost data are unreliable and misleading. If financial management is weak in the acute sector such as hospitals it is worse in primary care.
Pushing economic power closer to doctors and patients with practice-based commissioning is a great idea, but one that will end in chaos if data, management skills and incentives are not properly aligned. NHS managers are drowning in policy documents and guidance notes, each pushing a new initiative. Their impact on each other has not been thought through. As the system is loosened, financial pressures and rationing are likely to intensify.
Can internal markets work? The answer is empirical rather than ideological. It depends on the circumstances and on the quality of system design.
Despite all Labour's extra money, the Conservatives' internal market reforms, started in the late 1980s and reversed in Labour's first term, brought average waiting list times down faster and generated NHS output growth almost double that of Labour's first six years.
Things started going wrong for Labour's reforms after the departure of Alan Milburn as health secretary in 2003 and one of the prime minister's health advisers the following year. The key factors driving change within the health department were at the political level, ministers and their personal advisers, and their vision had not been embraced by senior civil servants.
The department, like others in Whitehall, did not have the policy design capability required for system changes of such magnitude. Neither did it have the implementation skills. Without a guiding mind, there was no one person taking responsibility for implementation. The recent departure of the permanent secretary is recognition of the problem but by itself is not the answer.
As well as fresh leadership, the health department needs to remedy a traditional Whitehall failing and have its own system design and implementation capability. People also need to know where reform is heading, so ministers need to keep articulating their vision for the NHS and the improved outcomes it is meant to deliver.
There needs to be greater radicalism in aligning incentives of clinicians and other staff with improving efficiency. The government's aim of shifting more care out of hospitals requires rationalisation of capacity. Hospital trusts sit on billions of pounds of property. Giving staff a share in the gains would facilitate capacity changes.
Regimes, it is said, are at their most vulnerable when they start to change. The NHS will not collapse of its own accord because it does not generate its own resources. By 2010, with health spending costing more than 10 per cent of gross domestic product, bailing out the NHS would have greater impact on fiscal policy and the economy than when it was 6 per cent of GDP.
But the prime minister was right in one respect. If Britain ends up with one of the most expensive healthcare systems in Europe still delivering care well below European standards, voters' demand for an alternative model will become overwhelming.
The writer is author of The Reluctant Managers, a report on reforming Whitehall, published recently by KPMG
http://news.ft.com/cms/s/8b03111e-cf41-11da-925d-0000779e2340.html
While the opposition is in the foothills of a policy review, ministers are grappling with the toughest challenge in public sector management: how to transform the NHS from a relatively simple but obsolete supply-constrained model to a patient-driven, demand-led one.
Conceptually their vision is right; but the design capability and implementation plan to realise this vision have been missing. The Department of Health began implementing a partially designed system, leaving the rest to be worked up as it went along.
The results are reminiscent of attempts by Mikhail Gorbachev, the former Soviet leader, to reform the Soviet economy. Financial deficits, overspending and tighter rationing are symptoms of underlying systemic failures.
Midway through the five-year implementation of payment by results - under which hospitals and other providers are paid for what they do, rather than simply for being there - the absence of proper commercial costing systems means cost data are unreliable and misleading. If financial management is weak in the acute sector such as hospitals it is worse in primary care.
Pushing economic power closer to doctors and patients with practice-based commissioning is a great idea, but one that will end in chaos if data, management skills and incentives are not properly aligned. NHS managers are drowning in policy documents and guidance notes, each pushing a new initiative. Their impact on each other has not been thought through. As the system is loosened, financial pressures and rationing are likely to intensify.
Can internal markets work? The answer is empirical rather than ideological. It depends on the circumstances and on the quality of system design.
Despite all Labour's extra money, the Conservatives' internal market reforms, started in the late 1980s and reversed in Labour's first term, brought average waiting list times down faster and generated NHS output growth almost double that of Labour's first six years.
Things started going wrong for Labour's reforms after the departure of Alan Milburn as health secretary in 2003 and one of the prime minister's health advisers the following year. The key factors driving change within the health department were at the political level, ministers and their personal advisers, and their vision had not been embraced by senior civil servants.
The department, like others in Whitehall, did not have the policy design capability required for system changes of such magnitude. Neither did it have the implementation skills. Without a guiding mind, there was no one person taking responsibility for implementation. The recent departure of the permanent secretary is recognition of the problem but by itself is not the answer.
As well as fresh leadership, the health department needs to remedy a traditional Whitehall failing and have its own system design and implementation capability. People also need to know where reform is heading, so ministers need to keep articulating their vision for the NHS and the improved outcomes it is meant to deliver.
There needs to be greater radicalism in aligning incentives of clinicians and other staff with improving efficiency. The government's aim of shifting more care out of hospitals requires rationalisation of capacity. Hospital trusts sit on billions of pounds of property. Giving staff a share in the gains would facilitate capacity changes.
Regimes, it is said, are at their most vulnerable when they start to change. The NHS will not collapse of its own accord because it does not generate its own resources. By 2010, with health spending costing more than 10 per cent of gross domestic product, bailing out the NHS would have greater impact on fiscal policy and the economy than when it was 6 per cent of GDP.
But the prime minister was right in one respect. If Britain ends up with one of the most expensive healthcare systems in Europe still delivering care well below European standards, voters' demand for an alternative model will become overwhelming.
The writer is author of The Reluctant Managers, a report on reforming Whitehall, published recently by KPMG
http://news.ft.com/cms/s/8b03111e-cf41-11da-925d-0000779e2340.html
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