Productivity and long term growth

Economic Survey of the United Kingdom 2009: The NHS: an economic health check

 

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The following OECD assessment and recommendations summarise chapter 3 of the Economic Survey of the United Kingdom published on 29 June 2009.

 

Contents

 

Spending on health care had traditionally been low by international comparison. However, during the 1990s it became clear that the National Health Service (NHS) was performing poorly on some health outcomes and responsiveness. Waiting times, for instance, were very long. This became a central policy concern and in 2000 the government pledged to increase spending to the European average. This pledge was conditional on the NHS undertaking a number of reforms. Health spending has indeed increased very rapidly since then, with a considerable rise in the supply of services. Health outcomes have improved, waiting times have come down sharply and the public is more satisfied with the performance of the NHS. However, available indicators suggest that the rise in inputs was faster than in outputs and that productivity of health care provision fell up to 2005, although these measures are not yet comprehensive. The reform programme needs to be followed through and fine-tuned in various areas to increase efficiency. This is essential to sustain the NHS in the face of budgetary constraints and to deal with the pressures from population ageing.

 

Expenditure on health
Percent of GDP, 2006

Source: OECD Health Data 2008.


The reform programme has covered many areas and the NHS has steadily evolved from being a centrally controlled organisation, towards relying much more on increased local autonomy and consumer choice. The Department of Health sets national minimum standards and allocates financing to regional entities. The principal local NHS organisations are the Primary Care Trusts (PCTs), each of which covers a population of about 400 000 people. They organise primary care and purchase other health care services (for instance, hospital care and pharmaceuticals) from NHS or other providers. This purchasing, known as commissioning, aims to improve health and well being for PCT populations within a fixed budget. Commissioning was also intended to raise competition among providers and lead to the development of new and innovative services. PCTs and general practices, many of which are also involved in commissioning, need more practical support and investment in skills to fulfil their responsibilities; attempts are being made to address these needs through regional and national programmes. To date, progress in these respects has been limited. However, a recent programme (World Class Commissioning) is seeking to improve PCT's technical commissioning capability and the health outcomes achieved. Results from the assessment of progress made in the first year (2008/09) show that PCTs have further improvement to make. Nevertheless, an evaluation of year one showed that there is great confidence within the NHS that the new programme will in time lead to an improvement in commissioning capabilities and governance. The devolution of decision-making through commissioning can result in variations in service provision, although there are national quality standards that all services are expected to meet. PCTs have statutory duties to engage with local government, patients and the public. However, local accountability arrangements may need to be further strengthened to support devolved decision making.


The introduction of an activity-based funding mechanism for reimbursing hospitals was a key element of the NHS reforms. It is known as Payment by Results, though it in fact rewards outputs and not outcomes, similar to the funding systems operated in other countries. A national tariff is used, with limited scope for local variation. The current reform programme should be used to reflect priority activities and developed to reward higher quality rather than merely reflecting costs. Another way of differentiation would base the tariff on the costs of more efficient providers, thus spurring efficiency gains. Consideration should also be given to align the remuneration of personnel, which is salaried, more closely with activity.


The reforms imply potentially radical changes to provider markets: Entry by a range of new public and private sector providers; the re-design of services by commissioners to meet local needs; and the impact of patient choice on the sustainability of existing service providers. Reconfigurations give rise to profound local political difficulties. There needs to be a clearer policy on entry, merger and exit of provider organisations. Much greater effort is, therefore, needed to improve the consistency and transparency of local service reconfigurations.

 

How to obtain this publication

 

The complete edition of the Economic Survey of the United Kingdom is available from:

The Policy Brief (pdf format) can be downloaded in English. It contains the OECD assessment and recommendations.

 

Additional information

For further information please contact the United Kingdom Desk at the OECD Economics Department at eco.survey@oecd.org.

The OECD Secretariat’s report was prepared by Petar Vujanovic, Sebastian Barnes, Philip Davis and Peter Smith under the supervision of Peter Hoeller. Statistical assistance was provided by Joseph Chien.

 

 

 

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