Tag Archives: money


Industry accountability for public contracts. (Photo credit: Ron Knox 2001)

I was watching the Public Accounts Committee on 23 May 2011 take evidence from IT suppliers and NHS executives on the NHS IT contracts. This monstrous contract was doomed from the start, yet few seemed to be in a position of influence to alter the ‘group think’ that prevailed in government. Civil servants and ministers seemed to breath each other’s air as they pursued this pig in a poke. Worringly, the PAC exchanges shed a bit of light but more revealing was the lack of common language amongst those concerned. Frequently, answers were not relevant to the question, used jargon or introduced further obfuscation.

In the end, whether supplier or NHS exec, the PAC was faced with a sea of denial, avoidance, or sheer hubris. I say hubris as NHS executives in particular were at pains to avoid rocking their own boat by being completely candid about things, preferring warm phrases that all was well, despite the CEO of the NHS being unable to answer many questions clearly, and seemed painfully ill-informed of his brief.

Evidence of obfuscation abounded as the MPs had to ask suppliers many times to answer with yes/no to what were straightforward questions. I was impressed with the efforts of some MPs (Bacon in particular) to get clear answers to important questions.  As a rule, complex answers betray a lack of understanding of the underlying logic — there are simple answers to these questions, not ‘it depends’ or ‘you’re comparing apples and oranges, pears’; indeed, at one point, the sessions seemed more about the comparative merits of different fruits than IT procurement. As well, the lack of clarity of underlying logic also evidences people were unable to agree on what the core problems were.  Now, granted for some this is likely to be a complex problem (in the technical sense of the word, a wicked problem), but I doubt that — the NHS’s needs and responsibilities are complex, but an electronic health record is a thing, with a defined functionality.

I remember sitting in a room just as this NHS IT for heatlhwas being firmed up (2002), and hearing the Director (Granger) at the time speak glowingly of the benefits. Upon hearing this, others in the international teleconference asked, “surely you’re not serious about doing this”, to be told, “absolutely”. As is said, act in haste, repent at leisure.

An important question was, knowing what we know today, was the original decision to proceed with this central and top-down approach sensible? The answers were evasive and broadly technically wrong. In 2002, it was perfectly possible to develop distributed systems, with broadly distributed functionality using various systems integration options to enable diverse technical architectures to co-exist to deliver uniform service. No one wanted to think that way for a couple of reasons. The first is ego: grand plans appeal to people’s ego needs, to be in charge of something big. The Director at the time exhibited serious Machiavellian behaviours, and failed miserably to engage users.  The second is conceptual: at the time, Department of Health and NHS executives were still thinking the NHS was a single lumpen thing that needed single solutions to its complex problems. In the early 2000s and late 1990s, that the NHS should be seen as a complex adaptive system was understood, but not acknowledged as it flew in the face of prevailing ideology about central control, driven by the mistaken (technical) belief that a distributed system, while diverse and pluralistic, would be unable to deliver a common standard of performance.

In the end, you end up with a system that is rigid, technically obsolete as soon as it starts operating and because it fails to evolve with changing clinical needs, which will change as clinicians become familiar with the technology and comfortable with its use, and start to specify more sophisticated applications. That some PAC evidence said that clinician need had evolved is nonsense — we know then that these were the core needs. Anyway, we’re moving on to smartphone apps, and there is little evidence that the system can accommodate the wireless world of healthcare. The best selling clinical app is ePocrates, for drug information. How many clinicians have that app? How many clinicians are using smartphones? Distributed and simple systems can deliver often quite complex solutions; for instance, the Danish electronic prescribing system was built on simple secure emails.

The approach that was ignored at the time was this:

  1. specify common standards of interconnectivity and functionality, that is results;
  2. allow providers to use whatever system they wished as long as it met these requirements;
  3. allow the system to evolve over time as needs become better understood;
  4. start with the patients who are heavy users (high risk/high utilisation) and roll out from there.

That’s it.

Where the English NHS and Department also lost the plot was failing to exploit the NHS IT project to drive innovation into the IT sector to encourage the formation of a potentially world-class health IT industry in the UK. Is it any coincidence that the main solutions are from outside the UK and the critical supplier expertise betrayed North American origins?

This is a real shame, as once again the Department has shown antipathy toward enabling a commercially successful and innovative health supplier industry, in favour of mean-spirited control. This was perhaps the greatest missed opportunity, as instead, the Department came up with false logic of needing suppliers of scale (who are now quasi-monopolists).  Indeed, one member of the PAC did question whether CSC’s corporate logic was to make itself a monopoly supplier to the NHS.

The tragedy, too, is that virtually all the functionality that the NHS needs can be downloaded for free in the form of open source software.

Finally, the best thing the NHS and the Department could do is make sure all that intellectual property that has accumulated is given away, to try again to jump-start a health IT industry. If there is a value-for-money lesson the PAC could draw it is to determine whether there is sufficient residual value in the NHS IT procurement to be translated into investment in the economy, to build new suppliers to the NHS and perhaps the world. An opportunity awaits.


I thought I’d add reference to this diagram on distributed clinical systems. The copyright dates from 2002, a time when the PAC was told such capability didn’t exist. The diagram is taken from the OpenEHR website, which adds “Much of the current openEHR thinking on distributed computing environments in health is based on the excellent previous works of the (then) OMG Corbamed taskforce, and the Distributed Healthcare Environment (DHE) work done in Europe in EU-funded projects such as RICHE and EDITH, and the HANSA and PICNIC implementation projects.”  In those days, the UK’s NHS was still charting a proprietary, and non-standard, approach to EHRs and clinical systems; an example of one failed programme is the ‘common basic specification’ — there is an interesting commentary here on some reasons why it failed.


Diagram of a distributed clinical system, ca 2002


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A Department of Health contract with a private provider of healthcare

The Bureau for Investigative Journalism reports that £500 million was spent on private health clinics in the NHS that in their view represents poor value for money. No doubt commentators will point to the private aspects of these contracts as evidence that they failed. A few comments on their Report:

  1. The contracts were pre-paid block contracts, and in most cases the complement of procedures paid for were not used. Now whose fault is that? In the same way as hospitals do not go around soliciting business from GPs, these clinics need referrals. The question in my mind is was there so much capacity that the pre-paid procedures weren’t needed? How many patients did not get treated because of a failure to use these contracts? Of course the same thing can happen in the NHS, just people don’t see it as quite the same waste of money as when private contractors are involved. But they are the same.
  2. That the Department of Health is buying them back is the Department’s problem, which the taxpayer has to deal with. I’m not sure what the point of buying them is, especially since they will close and their treatment capacity lost to the doctors. Is there that much excess capacity in the NHS that they can take out that much capacity? The Report doesn’t clarify what is actually going to happen next. I don’t disagree with them about this being a poor use of money, but the decision to remove these facilities from available capacity is a bad decision, regardless of who runs them. The firms running them have excellent clinical performance track records in the main.
  3. The original contracts were commercially naive. But the UK’s NHS has a very poor track record with commercial suppliers, and so to get anyone interested at a time when there were serious shortages of capacity (and still are of course), they had to underwrite some of the risk. Of course, what might be thought of NHS facilities such as Foundation Trusts are increasingly not publicly owned as such but owned by the organisations that run them, and there are similar contracts with them. (GP premises are also private) Keep in mind, too, that pre-paid block contracts are an acknowledged (but poor) way for buying hospital services, so NHS facilities have also benefited from this — but just to be clear, many NHS facilities over-provide on these contracts, run out of money, usually 9 months into the contracts, then have to pull back in the last quarter. With payments based actual activity, you pay for what you buy, which explains in part why NHS facilities are running out of money — they cost more to run than the activity they are providing based on the income they derive from that activity. Nothing to do with being a public or private organisation, but a lot to do with how contracts are structured and of course how the hospital is managed. One hopes that more sophisticated contracting will emerge.
  4. NHS contracts are generally risk-free, that’s why there is the current fuss over competition in the NHS, as it would introduce risk. If risk were introduced, it would naturally level the playing field for private providers. But with risk-free public contracts, all the private providers wanted was the same contract conditions as NHS providers. The sensitivies around this, though, tend to favour a default assumption that the publicly owned, if that is strictly true anymore, institutions are better value-for-money than the private ones, when it comes to clinical activity.

This Report focuses on the expenditure of money without asking the next level of questions which go the heart of how and why money gets wasted in healthcare and why the NHS has so much difficulty with its contracts (let’s not get started on NPfIT).

But the Report is useful by illuminating the financial consequences of poor commercial decisions within the Department and the NHS. I just wonder whether there has been any learning as a result.

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Item in the new: “The manufacturer of a drug which could extend the lives of thousands of people suffering from a rare form of cancer has agreed to pay for further patient treatment as part of a cost-cutting scheme.”  This arises from a decision of the English agency NICE to recommend limited use of this medicine.

We have a situation where the pharma company is going to provide the medicine for free to a certain group of patients (the details aren’t important for this commentary) at a certain point in their treatment — in this case toward the end of that person’s life.

How are we to make sense of this?

Who benefits?: the patients get the medicine which they would otherwise not get it toward the end of their life; indeed, unless they were able to pay for it themselves, they would be deprived of the medicine. NHS gets a medicine, which it would otherwise not pay for, for free, for a group of patients, one might argue they were abandoning.

Who pays?: the pharma company absorbs the cost of doing this for one final application of the medicine if needed; the public sector does not pay anything.

When some derive benefit for free from the actions of others, we call the former free riders; that makes the NHS a free-rider. Indeed, one might view NICE and other HTA agencies as acting to achieve free-ridership for the public system, by rationing public funding according to the HTA assessments. The pharma companies, wanting their medicines to be used (they might actually also want them to be paid for), give them away for this group of patients for their own reasons.

This small group of patients would undoubtedly suffer, a price NICE deems worth the cost, and the NHS in this case, is willing to be bound by a decision which may actually increase suffering. The pharma company has come to the rescue of these few patients and is now doing what one would think the public system should do, alleviate suffering. Had the pharma company put profits before use (which they appear not to be doing otherwise they would have sought payment) no doubt they would have been criticised for their prices, which of course underpins NICE’s cost-benefit analysis in part.

Did NICE shake down the pharma company?

I have argued elsewhere, that public health systems must be the payer of last resort (the so-called Rule of Rescue), which should challenge NICE’s models that would increase suffering, as that cost is something no state should ignore. The unethical conduct of public bodies here is breathtaking.

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With public finances in most countries looking pretty challenged these days, what steps can central jurisdictions take to achieve two key health policy goals:

  1. reduce the overall healthcare expenditure by bending the cost curve down,
  2. improve productivity, value-for-money, health outcomes.

Few in government have much experience with reducing healthcare expenditures.  And ministers are rightfully fearful of voter wrath, so one must wonder where the political courage will come from in the first place. Perhaps the key thing is denial is not an option, neither is blame-fixing. The first rule, therefore, is to fix the problem, not the blame.  True statesmanship is now needed, more so than party political rhetoric; that is, of course if we are right that things are in a really bad way.

Few, too, in healthcare management have the necessary experience with substantial changes needed in healthcare delivery systems especially where resource constraints will need to similarly deliver productivity gains.  We’ve had tremendous growth in healthcare expenditure matched with uptake of new technologies, complex treatments, and greater clinical specialisation. We can simply do more, and it costs. But along with this rise in capability, there has been much less reform of the way healthcare is done. Clinical workflows continue to be clogged with unneeded activity; we still use expensive hospitals when less expensive polyclinics or primary care settings would do. We fail to exploit the full potential of the other health professions, such as nurses and pharmacists. The second rule, is that you cannot continue to fund an unreforming health system.

Reform must be a constant feature of healthcare, since it is so dynamic as an area of innovation. If we want to bend the cost curve down, we need to persist in reform, indeed, disruptive reform, creative destruction in healthcare service delivery.  It is not about being nasty as a finance minister, it is all about using the money to unleash creativity to the benefit of all.

The challenge is less how to do that though, than wondering why what is there about healthcare today that seems to keep that from happening in the first place. Now that is really something to wonder about.

The Department of Health headquarters in Whitehall
Does the buck stop here?  (Department of Health, London)

For all the reform and protestations that the public deserves a health system for the 21st century, the ongoing saga of health reform in Britain continues to amaze.  The Secretary of State for Health for England, Andy Burnham, has decided that NHS providers get to try twice to prove they are worthy of continuing public confidence.  As he has put it, the NHS is the “preferred provider”, apparently for itself.

Those not familiar with the reform of the NHS, and indeed those who are, must be wondering why mediocrity should be rewarded, and in these difficult times, why the taxpayer or the government should countenance circumstances that public public money at risk.

The NHS commissioners (purchasers in real world speak) are the surrogates for consumer choice, as while NHS patients do have some choice, commissioners in the end are deciding in which directions that choice can be exercised.  A bit like Henry Ford’s model T car: you can have it in any colour as long as it is black.

Why should this matter? The Minister has said that the NHS should not be agnostic about who provides healthcare service delivery but instead favour NHS providers.  But as a monopoly supplier of services, the NHS and the English Department of Health must be mindful of abuse of a dominant position and in particular favouring institutions that are in effect emanations of the state, on the one hand, and forcing the public to experience second-rate service on the other.

Favouring a failing provider strikes me as looking a lot like state aid.  It also does not appear to be a service contract either, as the reason for awarding the contract seems to depend on the ownership of the provider (and protecting their status) and not whether they can deliver the service to a quality standard (which is the purpose of the contract).  The clue that this is a policy fudge is that a failing provider gets another chance to be a preferred provider over a potentially more competent and higher quality provider.  Can you legally enter into a contract for a service to a quality standard, knowing in advance that the provider is unlikely to be able to deliver to the terms of the contract?

Hmm. So much for value for money and healthcare fit for the 21st century.  Do I hear the auditors stirring?

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McKinsey 7S framework
Not Rocket Science! (McKinsey 7S)

The leaked McKinsey report on the NHS, which endeavoured to provide a review of areas where efficiencies can be achieved in the face of declining public finances does not really offer anything we don’t or at least shouldn’t already know.

NOTE: This post does endorse the McKinsey’s report findings — only to express some surprise that it was not more insightful.  Of course, I have only read the leaked documents, and cannot comment more fully, but then if the Department of Health did want a proper (adult) debate, they would put it in the public domain for all to see.  Perhaps McKinsey would, as supposedly insightful strategy consultants, suggest to the Department the value of a wider social debate on the NHS priorities — but this isn’t their style.  The wisdom of crowds, or the madness of experts?

So on with the commentary.

As if at least 20 years of NHS reform meant nothing, OECD countries together are grappling with rising healthcare expenditure coupled with demand that seems insatiable.  The recession and its consequences has for many offered a useful policy window through which to drive changes that under more benign economic circumstances would be untenable.  Health, as always, is the last to face the music.

What actually is the NHS?  In the UK, it is 4 devolved publicly (tax) funded universal health systems (England, Scotland, Wales, Northern Ireland run their own show); McKinsey is writing about the English NHS.  The “NHS” is often described as one of the largest employers in the world, but then healthcare systems are generally large employers, usually about 5% of a country’s workforce, consuming around 9% of GDP.  The whole health industry is usually about 15% of GDP, employing perhaps 7-8% of the workforce.  So they are all big.  What characterises the UK’s fascination with the NHS is the tendency to speak of the NHS as though it were ‘one thing’, whereas it is more likened, perhaps more accurately, to a confederation.  Regretfully, policy makers have failed to really make sense of the role of private and non-profit providers so there is really only weak integration of services across all providers.  This constrains policy and service delivery somewhat in England as there is always the fears of privatisation and so on.  It is worth keeping in mind though that general practitioners are private sub-contractors, while the acute sector is increasingly run by autonomous arm’s length hospital ‘foundations’ (a weak attempt at copying a hospital arrangement from Spain).

So the NHS is an acute service provider, a contractor for primary care from service providers, and a buyer of services from acute providers.  That it is characterised by a purchaser/provider split is helpful in understanding the constraints under which the system works, as the purchasers (primary care trusts) are in the main general practitioners commissioning (English jargon for buying) care from acute providers.  This engenders some confusion in the public domain between who is responsible for the planning and problems that get thrown up.  The McKinsey report can be seen either as a message to acute providers to reduce their overheads, or a message to purchasing organisations to set contracts with tighter cost controls for the value received (i.e. for the care provided at what level of quality to their patients).

The politicians are indeed running around in a bit of a frenzy because the NHS is seen as a sacrosanct public sector organisation, and that cutting the budget would be equivalent to committing treason.  Of course, this adds to the problem and increases the denial.  This strengthens the hands of those who oppose reforming healthcare, and makes the case for increasing efficiency and productivity, and in general ensuring that the public receives good value for the tax money spent on healthcare more difficult.

Yes, healthcare is a hands-on activity, and yes we need hospitals (at least for now).  But it is hubris to suggest that the acute hospitals are as productive and efficient as they could be, or that the distribution of clinical work across the health professions is a well done as it might be.  Hospitals by and large still draw on industrial age models of organisation — they are little different from commercial conglomerates.  Efficiencies in McKinsey’s report comes from things such as:

  • vertical integration (hospitals into community care, for instance)
  • integrated care pathways (something healthcare has been up to for at least 20 years)
  • reduction of waste and duplication (no surprise there)
  • role clarification of clinical work (yes, professional cartels called Royal Colleges)
  • elimination of clinically ineffective or doubtful work (the tough call but is a natural consequence of evidence-based medicine).

Criticisms of the report are right to the extent that McKinsey has done what they are generally good at: stating the obvious.  Any of these items should be on any hospital CEO’s to-do list, and subject of Board level discussions.  Unfortunately, where McKinsey is less good is in looking at the NHS and assessing the underlying logic and meaning of its organisational structure, its clinical care paradigm, and how it can evolve, as a dynamic entity, into a better care system (they would surely argue that that wasn’t their brief, but good consultants work with, not just for, their clients).

But salaries and infrastructure (buildings) are the costs to look at: perhaps 80% of a hospital’s budget.  Choices here require a different logic, and include:

  • using e-health, telehealth technologies to replace both staff and infrastructure (home telecare monitoring, for instance)
  • use of supportive clinical decision-support technologies (from robotic vision systems to work with radiologists to scan mammograms, thus doubling the number of radiologists, to artificial intelligence systems to data-mine health records to identify patients are risk of A/E readmission to a COPD exacerbation)
  • using medicines to replace hospital stays, surgical interventions
  • using best-imaging-technology first to diagnose (the best technology to diagnose a problem is not generally used in initial diagnosis, an x-ray might be used, then CT, then MRI.  Just use the best first.)
  • and so on.

These all address the possibility of labour (clinical work) substitution, (which might improve the quality of the jobs clinical and support staff actually do), greater patient empowerment (as they take greater control of their healthcare, direct resources to achieve their own healthcare goals), and a real use, slowly being addressed by the Connecting for Health initiative, for information for clinical and patient decision-making.  This emerging information value-chain will produce improved measurement of clinical outcomes, and thus inform better in-hospital decision-making and resource allocation.

Of course this ignores the actual physical unbundling of hospitals themselves.  The organisational logic that requires the aggregation of clinical skills in the modern hospital is dated under many service scenarios.

So where are we?  We are at the point of knowing that much can be done to improve the patient’s experience of healthcare, by driving out dated clinical and organisational practices, adopting new practices and technologies, procedures and methods.  It should not be inconceivable for any healthcare system to achieve 20% savings.  Fear of alienating clinicians is less the issue than engaging them in service improvement, to which they should be committed.  This will in the end ensure the high-touch requirements of healthcare where it is needed, without protecting sacred cows and vested interest groups.  In the end, it will come down to political will, managerial commitment, and clinical professionalism to ensure, in a publicly funded healthcare system, that the public gets what it thinks it is already paying for.  Otherwise, resistance looks a lot like protectionism.

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TGV at Avignon, France
For faster healthcare, you need new tracks

The UK is again in the midst of a crisis of purpose as it seeks to understand how to balance the monopoly (under) supply of health care that characterises the NHS, and enabling individuals to purchase (mainly) medicines that are deemed too expensive.  Apart from the argument made in an earlier posting that the NHS cannot get off the hook of paying for high cost healthcare, rationalising the current mix of co-payments can only be good.  The effect of enabling top-ups (as if that is really what they are, of course), or more accurately co-payments, would actually harness a variety of features that currently elude UK health policy makers.

Enabling wider use of copayments (also apart from the literature which would say they increase social injustice and are an example of a policy zombie), would turn the UK NHS into the French health system — and given the evidence from France, that might not actually be a bad thing.

Such a change would have the effect of clarifying the current dispensing fees for medicines, bundling them with the cost of medicines deemed by NICE to be excessively costly, and enabling payment by individuals through suitably prepared supplementary health insurance — which reversing the senseless actions of the Labour government in 1997 could be made tax deductible.  It would also enable a simplification of the current gap between NHS and private dentistry (by blending entitlements) and enable easier utilisation of the wider healthcare infrastructure of public and private (sorry, not very politically correct here, independent) provision.  Further bundling with individual social care budgets would open the way toward consumer-led purchasing of healthcare, something of considerable interest to people with long-term conditions who no doubt dislike others telling them how to lead their lives.

All this would provide the needed disruptive influence to drive provider reform and improve quality and system responsiveness much faster than would otherwise be the case if the PCTs, ICOs and whatever next crops up, were to try to achieve the same goals through institutional planning processes (not an easy thing to do with complex adaptive systems that in effect ignore the impact of patients in the system).

No need to create a market, no need to fuss about social justice, individuals would be given responsibility for their care and that is a just thing to do. The NHS in its current form  effectively insulates individuals from the consequences of their own poor health and lifestyle choices which only exacerbates injustice to the extent that it undermines individual autonomy.

Rather than co-payments having the economic effect that various folk have written about, policy makers would have instead a mechanism by which public health goals could be pursued, through a partnership between the state/NHS and the individual, rather than a partnership between the state/NHS and PCTs/itself, with the patient as an interested, but disenfranchised bystander.

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