Tax or efficiency: making sense of the politics of the NHS

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Radio 4's Moral Maze on the NHS yesterday didn't start well. The first witness raged at the institution's inefficiency and how people were using its supposed moral integrity to justify it. Tens of thousands were dying as a result, he said. His interlocutors provided no real challenge. I switched off. This is symptomatic of the very poor quality of political debate about the NHS here in Britain. I don't suppose debate in other countries about healthcare is any better.

There are two things that are not well understood about the NHS. People on the right fail to appreciate that the NHS's inefficiency is a function of the complexity of healthcare, and not its "socialised" funding model. People on the left fail appreciate that the effective state monopoly of healthcare means that we get less of it than people really want.

It was the first point that the Moral Maze's witness was running foul of. The only evidence he quoted was that private hospitals in the UK spend much less on administration and management than NHS ones. But these private hospitals only offer a narrow range of services to a select few clients, and so are much simpler to run. International surveys consistently show that the NHS is less wasteful of funding than pretty much any other nations' system. These systems have the complexity of operating insurance records and administering claims; they do not prevent expenditure on ineffective treatments or wasteful breakdowns of communication between different parts of the system.

I know something about how this happens. Apart from being an accountant, the core of my professional career has been as a general manager whose mission was been to manage systems as efficiently as possible. In that role I have been responsible for some pretty dramatic improvements in productivity. At one point I even looked for a career in the NHS, though nobody in the service was prepared to take the risk of taking on somebody without a track record in health services, or at any rate not without the kind of hard-nosed bullying persona that many in the NHS seem to think is what effective management is about. I have thought quite a bit about how you might make the service more efficient.

That there is monstrous waste is not in doubt. As a patient you spend a lot of your time waiting around, and then repeating yourself to the myriad different people you are handed on to. A lot of the NHS is in fact very efficient; the problem is fitting the various bits together so that the right treatment is delivered to the patient at the right time. And that's before the question of how to ensure that less people need healthcare services in the first place.

This failure to get things to fit together is a familiar problem. Understanding this was at the very heart of what I tried to do as a manager. My technique was quite simple in principle: to make processes as simple as possible, and focus them on what the customer needs. A simple idea that was quite revolutionary in the 1990s, when it was usually labelled as "business process re-engineering" (or BPR).  It went against a production line approach borrowed from manufacturing, where workers would specialise in a single task. The technique required fewer specialists and more generalists. Or, to put it another way, it required workers to specialise on the customer that they were serving, and not in a particular functional skill.This usually entailed not just the retraining of workers, but a redesign of information technology.

BPR is now largely played out in the world of commercial services, with automation and artificial intelligence taking over. But the BPR revolution never really got going in healthcare. No doubt this was partly down to the vested interests of those that worked there. But I have to realise that there is a much deeper reason. The complexity of health services requires the use of specialists to a much greater degree than in pretty much any other activity that I can think of (another notoriously inefficient sector, defence systems, is comparable). Healthcare is crying out for patient-centred treatments, and yet this is very hard to do efficiently because you need to involve so many specialists. The field is riddled with what economists call "information asymmetries" which undermine all attempts to put consumers in charge using market mechanisms.

Which is why nobody does it well. And why trying to restructure the NHS to make it more efficient is always likely to fail. The Coalition government's attempt to do so by putting general practitioners in charge is generally regarded as a costly failure. The current trend in the NHS towards "integration" is a bit more promising, but pitfalls abound. Trying to bring market mechanisms into play helps solve some problems but creates others.

But if this line of criticism of the NHS - that it is inefficient because it lacks market mechanisms - is misplaced, it obscures a more valid critique. It is that the NHS restrains the level of health spending, meaning that people get less healthcare than they want. If you could wave away the information asymmetries with a magic wand, and find a way of allowing poorer people to meet their basic needs, how much healthcare would we buy in a market ststem? Lots. Healthcare promises longer life and less pain. It is an unmatched consumer proposition. Everybody wants more of it. Britain tends to spend less on healthcare as a proportion of its income than other high income countries. And much less than the most unrestrained healthcare market: the United States.

One example gives a good illustration. A number of very expensive tailored cancer treatments have been developed by pharmaceutical companies. These don't prolong life by very much, or at any rate there is no convincing base of evidence base of this. So the NHS often bans them; the money will secure greater benefits if it is spent on other people. But if you are the cancer sufferer that could benefit, and you have the money, you might want to have it anyway. The NHS does not allow you to pay extra (co-payments in the jargon), because it is deemed morally wrong that a patient "in the next bed" with the same condition does not have the same treatment. In principle you could transfer to a non-NHS facility in the UK or elsewhere. But this is usually impractical, and brings with it additional costs. This is such a difficult problem that politicians try to camouflage it with special slush funds. But this is just an extreme example of a more general problem. Lots of us would happily pay a bit extra to get better treatment.

The obvious solution is to ramp up overall spending on the NHS to the sort of level that a perfect market system would lead to. But that means much higher taxes, and the evidence that people are willing to pay that much is weak, to say the least. Most people say they are happy to pay a bit more tax for a better NHS, but this willingness melts away when you start raising the amount. The problem is that there is  no personal link between the taxes you pay and what you get. It always seems as if the money is benefiting somebody else.

This, of course, is precisely the dilemma that the current government is stuck in. It has announced plans to increase NHS funding but it is unclear about how it is to be paid for. The Labour Party are little better. They hope a lot more tax revenue will be available from rich companies and businesses; but they also want to end "austerity" in many other parts of public services, limiting the amount available for health.

What's the solution? I think taxes should go up. I also think we need to find acceptable ways of allowing people to spend more of their own money on healthcare within the NHS system. And we shouldn't just give up on the idea that healthcare should be delivered much more efficiently. As regular readers of this blog will know, I think that means more localised management and more integration with other public services, and a stronger focus on the needs of users. Alas I hear very little of such ideas in the cacophony that is the political debate on the NHS.