Cost of the Market to the NHS

The definitive work on this was in a publication in about 1995 entitled “In Practice – the NHS Market” by the Health Policy Network.  Unfortunately it is now out of print otherwise I would have been happy to send you a copy. It is a well researched and referenced paper with a foreword by Sir Douglas Black.

The main finding was that the administrative costs for the year 1992-3 in England were 11.6% of total NHS expenditure of just under £30 billion. As most commentators, then and now, accept the pre-market administrative costs as 5-6% this represented a doubling following the introduction of the Thatcher/ Clarke Internal Market.

The source of this information was the Health and Personal Social Service Statistics for England(1994 edition). The HPN publication was widely distributed but never challenged.

The Internal Market of those days was very limited and with the increasing complexity of  marketisation over the years the administrative costs will inevitably have risen further, but how far? As you know, the figures are no longer published and even the Health Select Committee had difficulty extracting them from the DoH. Eventually a figure of 14% was offered, indicating something in excess of £14billion, compared with well under £2billion pre 1990, a more than 7 fold increase.

Had the much simpler non-market system been retained we would be looking at administrative costs of 5-6% i.e. in rough figures £5-6 billion, making a difference of £8-9 billion. However, is it correct to assume that whilst the overall cost of the service has trebled in the past two decades the amount spent on administration would necessarily have trebled also?  The major driver of increased costs has been the “medical inflation” represented by more expensive drugs and more complex investigations and treatments which should not of themselves be more costly to administer. It is therefore likely that the overall administrative costs today of a non-market system would be considerably less than £5-6 billion.

The foregoing comparisons relate of course to the NHS before the full effects of the Health & Social Care Act have become apparent but it is very unlikely that they will not require even more administrative back up. The figure of £10 billion which could be saved by following the rest of the UK seems a very reasonable and perhaps conservative one.  Of course it would not be achieved at a stroke. It would be inequitable to suddenly make large numbers of staff redundant, apart from the cost of redundancy pay, but more likely, as I believe happened in Scotland, many could be  redeployed into other work allowing recruitment in many areas to be reduced and the full savings realized over a period of time.