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.

7 thoughts on “Tax or efficiency: making sense of the politics of the NHS”

  1. “………….People on the left fail appreciate that the effective state monopoly of healthcare means that we get less of it than people really want.”

    This doesn’t really have to follow. If we had a major war to fight, for example, we wouldn’t say any problems with the war effort were due to the state having a monopoly on armies and navies etc.

    Not that I’m saying that we need to put the country on a war footing to support better health care! Relative to GDP the UK spends about 9.6% on health in comparison to just about double that for the fully privatised system in the USA. We don’t want to get into a situation where we are training doctors to work for insurance companies whose role is to find excuses why they don’t have to pay out on their policies.

    We need to spend more. Which, in resource terms, means we need to devote more of the national effort towards health. If people are living longer then there’s no obvious reason why they suddenly should stop working at 65. Better to let them carry on, if they are medically capable, but just cut back on their hours to suit their advancing years. That way we have more available resources in the economy.

    You’re never going to solve the problem with 1p on income tax or introducing a mansion tax or soaking the rich. It has to be tackled by looking at the available resources we have and making the most of them. Just like we do naturally when there is a war going on but without going to that extreme.

    We can offer job guarantees for young people to train medically. It really makes no sense to charge young nurses for their education.

    1. Yes, the obvious answer is to expand state funding, which is what I say in the post. But, just as in a war, that raises question of finance – but worse. Wars are, or should be, of limited duration. Healthcare is an ongoing commitment forever. For wars we are happy to accept economic hardships, even if they don’t take the form of explicit taxes.In WW1 and WW” we vastly expanded armed forces during the war, only to run them down after the war to a smaller size than they were before it started; the country’s capacity to fight wars has diminished the more wars we have fought. So I think expanding state healthcare implies raising taxes by a lot more than people say they are are comfortable – as you say, the odd 1p on income tax isn’t enough.

  2. We agree about the 1p. But I don’t accept the argument that because we are healthier and expect to live longer than therefore we’ll inevitably have to be worse off, pay much higher taxes or have to give up on the concept of the NHS. It does, though, mean that we do have to think about the concept of work and retirement.

    Say we all had a life expectancy of 100 yrs. Which could be quite possible. Something would have to give, wouldn’t it? It’s just a question of thinking about how best to transition that.

    1. It’s an interesting question as to why demand for healthcare services is rising even as we live longer and get healthier. I don’t think individual healthcare needs have necessarily increased. There is a demographic issue with a bulge of older people working its way through the system. More treatments are becoming available and these are often more expensive. It may just be an aspect of improved standards of living, as we get wealthier we want to spend more of our surplus income on healthcare, given the choice.

      I’m not saying we give up on the concept of the NHS. I’m saying that we’ll increasingly have to bend it at the edges to allow people to spend their own free money. This has already happened with dentistry and optometry and has always been the case with social care.

  3. No-one has to use the NHS. Wealthy people don’t. Can’t you pay extra for a private room rather than being on a ward? I don’t really see anything wrong with this providing that the level of medical care is the same for all.

    Technology also has made many operations much cheaper. So ‘keyhole’ surgery now enables the same procedures to be carried out on day patients that would have required a lengthy stay at one time. Women are now routinely in and out to give birth in a matter of a couple of days instead of the couple of weeks that it used to take. We don’t have the need for isolation hospitals any longer where patients with TB were kept for months at a time.

    To some extent we’re victims of our own success. If we’re all better off then we have to pay everyone more to share in all that. So the members an orchestra are much better paid than they used to be and so running an orchestra is now ultra expensive. We can’t use the argument that an increased GDP will pay for that.

    These problems aren’t insoluable. But, as always, we do need to get away from this type of thinking:

    “This fall in revenue significantly surpasses our net contribution to the EU. The Institute of Fiscal Studies notes that there will be less rather than more money for the NHS and other services.”

    (Incidentally from a recent LDV post on the NHS)

    It’s difficult to get people away from the concept of pro-cyclical spending. When taxation revenue is high then Government should be cutting back a bit to prevent inflation. But then everyone thinks “Yippee let’s spend all this lovely money pouring in!”

    It’s the other way around. When the economy is a bit sluggish, and tax revenue is low, that is when we do have the spare resources in the economy to spend more without causing high inflation.

  4. The NHS looks to me set to be short of funds indefinitely – the 3.4% increase a year over a 5 year period recently announced by Theresa May is only enough to keep pace with increasing demands, not bite into the backlog; and the Labour manifesto for the last election was noticeably short on a big funding commitment for the NHS. Moreover, the increases in funding needed by the NHS is putting acute pressures on other areas of public expenditure which also need more money. Yet as an institution it remains highly popular. So what is to be done?
    Two thoughts. First I support the principle of hypothecated taxation for the NHS – after all, National Insurance contributions are really a hypothecated tax. In particular, I think that the elderly (as a group) should be subject to specific taxation to meet the extra costs to the NHS of people living longer than previously (evidenced e.g. by extra pill use by the elderly, extra need for hip and knee replacement operations).
    Secondly I think we should consider a system of co-payment for medical treatment which is a matter of maintaining highly desirable life style choices rather than core medical necessity. IVF treatment for women of child bearing age would be one example, expensive hearing aids (as opposed to the basic product) for the elderly would be another. We might be able to means test the need for co-payment so that the really poor (as measured, for example by the receipt of in-work benefits for those of working age, the receipt of the supplementary state pension for those who are retired) did not have to pay. This would start to address an underlying problem, that although the NHS is in the interests of the great majority of the electorate, it is only more ambiguously in the interests of those who pay the bulk of the taxes.

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