Saturday, 14 August 2010

NHS Funding

As part of my day job, I spent a couple of days this week looking at the Government's white paper: "Equity and excellence: Liberating the NHS". This paper outlines the Government's reorganisation for the NHS. The highlights (from a structural and funding perspective) are:
  1. GPs become the primary fundholders and, as Consortia, will buy the health-care required for their patients
  2. Strategic Health Authorities and Primary Care Trusts will be abolished
  3. Increased possibility of private provision of health care, including private hospitals within the NHS
The first two changes go together. At present, the Primary Care Trust (PCT) is the main NHS fund-holder for patients in their area. They purchase services from NHS providers to serve their community. Under the new model, GP Practices will group together to form a consortium that will purchase services from the providers for their patients. The reason for this change sounds sensible: they want the GP to be in charge of their patient's care. In this paper's view, being in charge involves being responsible for funding decisions. I'm not convinced for three reasons.

Firstly, when I visit a GP, I want them focused on my care. If they are also part of the process of working out how to pay for my care, this introduces a potential conflict of interest. Obviously, there are limited resources and there have to be compromises between who gets the best care. However, I'm not the medical expert, my GP is. I want them on my side. I want them fighting for the best care for me. Of course they won't win every battle for those scarce resources, but I don't want them to be the ones compromising.

Secondly, GP Practices are private enterprises and it is reasonable to expect that GP Consortia will be private enterprises as well. So this means that approximately 80% of the NHS funds will be controlled by private enterprises. It is also reasonable to assume that private enterprises will operate commercially - with expectations of profit. At the same time, all the existing NHS Trusts that operate hospitals will become foundation trusts - that is trusts that partially operate on a commercial basis and will be regulated on the same basis as private providers.

Thirdly, it's not at all clear how GP Consortia will be formed. The early estimates seem to suggest that there will be more GP Consortia than the current number of PCTs (there are currently 152 PCTs; estimates of around 300 GP Consortia seem common; in Oxfordshire, there is one PCT and there are six GP Consortia). This represents significant fragmentation of the funding markets. For large providers, like the John Radcliffe in Oxford, this means managing six funding relationships where there was previously one - hardly a more efficient approach.

It's not likely this situation will last. Market forces - mostly economies of scale - mean that this sort of fragmented market doesn't usually last. Consortia combine forces to enhance their purchasing power, which leads towards an oligopoly where a small number of large players emerge. This starts to look remarkably similar to the US model, with the GP Consortia taking the place of the insurance companies. The US model is the most expensive health care system in the world and delivers worse performance than the NHS. I'm not sure this is a model worth replicating.

Thirdly, it doesn't directly address much by way of the real problems. The NHS is a big and expensive organisation. However, the UK's health spending per capita is relatively low. The Government spending on health (as a percentage of GDP) is lower than other European countries - including the US! The percentage of total health care spending from private sources is lower than these countries. And the total per capita spending on health is significantly lower: approximately have that of the US. Putting all of this together, it seems that the NHS is significantly under-funded. It is not clear that these changes will increase the funding available to the NHS (see here for the source data). In fact, the Government is expecting to cut NHS funding by up to 20% - which is supposed to be achieved without cutting front line services. This funding cut is meant to be achieved by improving efficiency. The belief is that by commercialising the health-care relationship, this will produce increased efficiency.

Probably the best comparison is Canada. Canada spends 10% of it's GDP on Health, compared to 8.2% in the UK. In Canada, 70% of this money comes from the Government, amounting to 17.2% of Government spending; for the UK, 80% of all health spending comes from the Government, or 16.5% of Government spending. So Canada spends a little more than the UK on health, but their health outcomes are significantly better than the UK - cancer and cardiovascular mortality rates are much lower.

The Canadian model is a Government funded insurance model. Each province has a Government run insurance scheme, funded from taxes (either from general taxation or from a specific health insurance levy, similar to National Insurance). Healthcare providers are mostly private enterprises that submit claims to the insurer. This insurance is administered by the Government and automatically covers all legal residents of Canada - in many ways, it's closer to the PCT model adopted in the UK.

All of this suggests that the real problems with the NHS are underfunding and the implementation of the funding model. Comparing the US and Canada suggests that a publicly controlled funding is both more efficient and more effective than a private model. It's not clear that reducing the total funding and privatising the control of funding will address these shortcomings.

Monday, 2 August 2010

Motives and Money

I saw this video a few weeks ago, posted by RSA Animate (I found it from a link posted by @ericschmidt of Google). It was bought back to mind when I read this FT blog post. The whole video is well worth a watch, but I want to focus on one aspect.

The video generally challenges the idea that people are motivated to work harder by money. That particular idea is pervasive and almost universal in modern corporate thought. It's no mystery why this happened. Most people are aware that economics assumes that people are self-interested. But what is less often explained is that they are interested in. In classical economics, people are self-interested utility maximisers. Utility is the economic measure for the satisfaction derived from a particular behaviour. In economics, it's a relatively short step from utility to value and from value to money. So if money and utility are the same, it's easy to see that people will behave in ways to maximise the money they make. If that's all true, then I need to pay someone for the behaviour I want and I will get it.

There are a number of problems with this view. The RSA Animate clip talks about one of these: that assumption just doesn't stack up against the empirical evidence. Money is not a generic motivator: it motivates people under specific circumstances. For example, when you don't have enough money (however you define that), then the ability to earn more will motivate you to try and earn that extra. Another case where money motivates is when choosing between jobs. If given the choice of two jobs, I'd look first to the job that paid more. If the pay gap was large, then the lower paying job would have to be significantly better in other ways for me to consider it.

Another point is hinted at by RSA Animate: they show evidence that pay for performance works with simple, mechanical tasks but doesn't work when tasks require cognitive skill. This isn't very surprising, and there is a lot of evidence for this finding. In a sense, pay for performance is a form of behaviour modification, where pay (response) is linked to behaviour (stimulus). Behaviour modification works best when the link between the stimulus and response is immediate and unambiguous. You can achieve this with simple tasks. But for more complex tasks, that link breaks down.

The final factor, which isn't in the video, is that money is what James March and his colleagues called a garbage can. This is a decision making model, where decisions tend to attract problems, which all get dumped into the garbage can. There is often no real relationship between the solutions and the problems, apart from the fact they all sit in the same organisation. For example, if you have a disenfranchised and unmotivated workforce, this could be a result of a number of different factors: company culture, poor management, a few disaffected staff, or any one of hundreds of other problems. As a result of all these problems, people complain. One of their complaints may be about the rate of pay, but this isn't always the real problem; and it is rarely the only problem. But pay is relatively simple to change - at least compared to the effort involved in improving management or changing company culture. Conversely, if you run a good, happy workplace, then you don't need to pay the highest wages to satisfy your staff.

So, money is a motivator, but not the simple motivator assumed by economic theory. The Welfare reforms proposed by Iain Duncan Smith take the relatively simple assumptions of money as a motivator and use it to reform the welfare system. The problem is, this assumes that the presence of benefits is a disincentive for people to enter work. The system is being re-organised to reduce this disincentive (and, as the FT points out, this will only be partially successful). The problem is this approach is based on an ideology: that money motivates people to work. This ideology just doesn't stack up against the empirical evidence.

Wednesday, 28 July 2010


I'm not sure how often I'll actually blog, but I will start now. It'll be a random collection of things that interest me - and for those who know me, the combination will be very random. At first glance, I suspect it'll include things like films, language, F1, books, music, science, philosophy, management, politics, dancing, TV, rugby and culture.

But that list is by no means exhaustive.