NHS spending: McKinsey exposes hard choices to save £20bn

By the time the national media picked up on HSJ’s first revelations about the McKinsey report last week, health minister Mike O’Brien’s official line had changed from describing those scenarios as being “looked at with many other ideas” to having been “rejected” outright.

Further whispers tried to paint the report as inspired by a civil servant and implied there was a link with the Conservatives. But as health ministers and their staff issued no less than three not entirely compatible responses, elsewhere in the Department of Health work on delivering savings has already begun, some of it chiming with McKinsey’s scoping exercise.

The report is clear that the bulk of the savings would need to come from the acute sector

The DH has set up a productivity unit; the report says such a unit could play a role in securing economies, addressing the “barriers to change to be removed”.

Recent DH proposals on de-authorising foundation trusts could also be seen as partially fulfilling McKinsey’s belief in the need for a “clear ‘failure regime’ for providers who are consistently failing”. That would supplement the failure regime already announced last autumn.

Another McKinsey scenario - “relax ‘excessive’ focus on some targets eg waiting times” - was floated by the department over the summer.

McKinsey says the NHS can save an initial £6bn-£9.2bn a year over the next three years through “technical efficiencies”. This produces a cumulative three year saving close to the £20bn NHS chief executive David Nicholson has been talking about since his annual report in May. But the McKinsey report goes further, suggesting the NHS could save a further £10.7bn a year on top by improving quality and shifting care to the most cost effective settings.

The report says the 22 per cent saving on the 2008-09 baseline could be “part cash, part reinvested in improved care” but it does not specify what proportions it expects of each - how much will come from an actual cash cut and how much through getting more for the same. Instead, it describes a four year programme of reforms and cuts in patient demand which, it argues, would allow the NHS today to live on £20bn less.

As HSJ revealed last week, the McKinsey report says this could lead to a 10 per cent cut in NHS staff and describes how it could be made fairly equally across clinical and non-clinical groups. That suggests £4bn of the £20bn savings would ultimately come from the pay bill.

Of the 137,000 posts those savings would come from, the detailed McKinsey scenario revealed in today’s HSJ suggest some 3,500 would be GPs and 1,600 district nurses.

McKinsey based its estimates of the number of GPs who could be dispatched on the assumption that the bottom performers - measured in terms of patient satisfaction and how many patients they see a week - would be pulled up to the productivity level of the best.

The worst 10 per cent spend only 17 minutes in each hour with patients. This translates into only 77 appointments a week, compared with an average of 126.

The worst 25 per cent fare a little better, with 105 appointments a week. If those poor performers were pulled up to the level of the best, the same number of patients could be seen each week with 3,500 fewer GPs. McKinsey translates that into an annual saving on their income of almost £400m.

McKinsey applies a similar methodology to district nurses. Its analysis found that although 15 per cent of the most productive district nurses make on average seven or more visits to patients in a day, almost a fifth make only four visits or fewer a day.

On average, district nurses make 5.6 visits to patients a day. If the least productive increased their number of visits so that the overall average increased to 6.6 a day, the district nursing workforce could be cut by 15 per cent without any change in the number of patients seen.

And although the management consultancy highlights the advantages of a rapid recruitment freeze to free up some of those posts, HSJ this week reveals that in its fully detailed report McKinsey says the NHS would, under that scenario, need to put aside up to £530m to cover redundancy costs.

That is more than the estimated £400m spent between 2006 and 2008 on NHS redundancies associated with the primary care trust reconfigurations. It is the largest single chunk of the £1.8bn McKinsey estimates these reforms and rationalisations could cost to implement.

The report is clear that the bulk of the savings would need to come from the acute sector. It says a third of the total savings will come from “acute staff productivity” and around £280m could be saved a year by acute trusts if they made better use of their existing space or if they increased their number of beds per square metre in order to vacate space, which would then not need to be heated and maintained.

McKinsey claims a further £8.3bn could be amassed if that vacant space was sold off, although the second largest implementation cost is £495m of capital spending over three years to get facilities into a fit state to either use or sell.

The rationale for both the workforce and space reductions is underpinned by McKinsey’s analysis of the volume of acute hospital activity it believes can either be shifted into the community or - more significantly for the overall NHS budget and workforce reductions - cut altogether.

McKinsey’s comparison of UK spending on hospital care with other Organisation for Economic Co-operation and Development countries shows that at £1,009 a head, the NHS spends almost twice as much as Spain on hospital treatment - second in its analysis only to the £1,350 per head of population spent in the US.

The report claims up to £700m is unnecessarily spent on hospital procedures from which there is limited clinical benefit. It suggests some of these procedures - the bread and butter of many district general hospital departments - could be cut by as much as 90 per cent.

It makes similar claims for GP referrals to outpatient clinics, saying up to £400m could be saved if referrals to specialisms such as general medicine were slashed by almost half.

Such cuts to patient care could prove controversial, but McKinsey research suggests a significant proportion of patients choose not to have certain procedures once they are guided through the full implications and likely outcome.

For mastectomy procedures, the number of patients opting to have them almost halves. For others, such as prostatectomies, a quarter drop out. But that lower demand will still need to be translated into ward or hospitals closures if savings are to be found, so the going will get undoubtedly tougher for managers. If the past week is anything to go by, politicians will confuse rather than clarify how the NHS should address the need to cut costs.