29 October 2015

How Toyota can save the NHS


The ADASS Annual Survey estimates that over £3.5bn has been taken out of ‘local authority adult social care funding’ between 2010 and 2014 (March 2014) putting government spending on the NHS at a level that will mean the lowest annual increases in the organisation’s 65-year history. If trends in demand for health services and the capacity to provide them continue, the NHS is facing a funding gap of £30bn by 2020. Whether pharmaceutical companies could or should reduce drug prices can be debated elsewhere, what is obvious is that action is needed on demand, efficiency and funding, carrying on with existing models of delivering public services is no longer sustainable.

As a side note, the seemingly inbuilt mind-set that better quality costs more should be left behind here. As the recent placing of Addenbrooke’s Hospital in special measures by the Care Quality Commission (CQC) demonstrates, the staff were found to be extremely skilled and caring, but management failures lead to increased waiting times, shortage of beds and increased capital expenditure.


The £5.3billion Better Care Fund (BCF) announced in June 2013 was set up to enable local authorities, local health services and other stakeholders to come together to develop, and implement new approaches to service delivery. It created a local single pooled budget to incentivize the NHS and local government to cooperate with the outcome of improving patient care and productivity. Yet Addenbrooke’s figures for patient’s length of stay (LOS) were crippled by inefficiencies in co-ordination: 200 beds were occupied with patients whose only reason for staying in the hospital was that social care was not in place to support them when they did leave. Even as the BCF was launched the training and support provided was known to be inadequate, leaving a clear skills gap between the plans for the Better Care Fund and its implementation – a range of implementation support tools including workshops are needed alongside.

Treating public health services like a business need have nothing to do with profiteering – it ensures basic operational functioning. Dr McNeil, who resigned from his role of chief executive at Addenbrooke’s, told the BBC he left because he did not believe he had the right skills to deal with the hospital’s financial crisis rather than disagreeing with the CQC assessment. The NHS is relying on doctors to form managerial teams, with the actual results being higher use of agency and bank staff to fill the skills gap. This puts negative pressure on productivity performance by pushing up capital consumption. The Nuffield Trust found that many of the differences in productivity levels between different hospitals in England, Scotland and the US can be explained by variations in technology, however, residual differences can be largely attributed to good and bad management practices. This is hardly news in the commercial sector.


Alongside labour and capital consumption, prescription drugs and NHS treatments are counted as components of healthcare inputs in productivity calculations. With the NHS currently facing staffing shortages, funding the most cost-efficient drugs and treatments is an obvious way to increase productivity performance. This does not mean saving money by only funding the cheapest drugs. David Cameron is being criticised for shaving £80million off the Cancer Drugs Fund (which is already on course to be £220million over budget) yet the most serious identified consequence so far is that 65% of patients with an advanced type of one specific cancer face the probability of an unquantifiably earlier death. So in statistical and utilitarian terms this seems like a fair step to have taken. More importantly, what Cameron is doing is channelling money into the most effective drugs. All licensed drugs are ‘effective’ in so far as the licensing process requires manufacturers to provide evidence that their drug works in specific populations and specific circumstances. Yet figures from the National Institute of Health and Care Excellence (NICE) show that obtaining a licence doesn’t necessarily require any evidence about how the drug compares to other similar treatments already in use by the NHS or how well it works in all people with a particular condition. Only 5% of decisions between 1st March 2000 and 31st August 2015 in published technology appraisals for anti-cancer agents from NICE were classified as ‘optimised’ for the NHS. In addition, the Cancer Drugs Fund was always intended to be a short-term solution to soaring cancer drug costs, a long-term mechanism is needed to deal with the problem.

The Department of Health can draw on the wisdom of Toyota’s renowned efficiency drive Toyota Production System (TPS), to eliminate key areas of waste. As unglamorous as it sounds, the quality and quantity of patient care could be improved if each patient was considered as a unit on a manufacturing assembly line. Yes, every patient is different but as TPS states: “it is crucial to ensure that the process is as flexible as necessary without stress or “muri” (overburden) since this generates “muda” (waste)”. Here are some basic ideas that would help the Forward View achieve its productivity targets.

1. Centralise purchasing within hospital trusts
The NHS is a state run service. So Monitor, the body of the Department of Health which regulates hospital or acute trusts should be responsible for centralising purchasing within the individual trusts. Lack of co-ordination and integration between the service providers causes waste of overproduction: one hospital trust discovered 950 printers in use when the IT director’s records showed only 350 as printers had been signed off by individual office managers. (This may seem like a trivial example but the Danwood Group believes the 165 NHS trusts could save more than £33million per year just from managing NHS printing better)

2. Encourage volunteering
Staff shortages destroy productivity performance as they slow down or stop the production line associated with treating a patient. Offering council tax breaks, for example, for members of the community who volunteer help could enable the production line of integrated care to keep flowing, reducing waste of time on hand, and length of stay or waiting time for the patient

3. Co-ordinate management consultancy for and within hospital trusts
Switching untrained staff equipped only with guidelines for trained managerial staff can avoid waste of production of defective products. Need we remind ourselves of the £12billion National Programme for IT that was eventually halted in 2011 after years of misconceived and mismanaged projects failed to launch the electronic care record.

4. Increase the internal market
Studies from Sweden and the US show that the replacement of global budget payments with an internal market, combined with case-based payments for hospital inpatients, led to an increase in technical efficiency (productivity). Case-based payments encourage productivity by rewarding hospitals for the activity chosen by purchasers or patients, informing purchasers about relative prices. Again, this is not a focus on profits but productivity as hospitals are competing on quality rather than price. In addition, such systems of administered prices can be managed centrally by the price-setting authorities to extract ‘efficiency’ savings from hospitals, encourage changes in case mix or incentivise quality improvements

5. Reduce waste of processing itself
The Academy of Medical Royal Colleges reported that: “Around 20 per cent of mainstream clinical practice brings no benefit to the patient and there is widespread overuse of tests and interventions”. The year-long study found that the NHS wasted about £2.3billion every year by conducting procedures it could have provided more affordably or avoided altogether. For example, one in five patients receives X-rays for minor injuries, costing £221million a year.

The strains under which healthcare and other public services are operating have increased dramatically in recent years, and there is no easy solution that will wave away the demographic and financial pressures that we face. The NHS needs to learn from the commercial sector to increase its productivity performance in its funding model, management models and choice of inputs.

Olivia Archdeacon is a CapX contributor