Health economist Professor Alan Maynard skewers the policy commissariat

“We know it’s stupid, but it is policy” said the Department of Health civil servant as the Secretary of State (SoS) left the room.

“But why don’t you tell Jeremy that it’s stupid?”

“Don’t worry we have but he just smiles, congratulates us on our insightful support and ignores us. It was, with varying degrees, ever thus!”

Secretaries of State live in cocoons which resist rays of evidence permeating the dense fog of expediency around Whitehall. They spout their belief in evidence-based policy, and then introduce reforms which are faith-based.

This is epitomised by the Lansley’s NHS reforms and Gove’s education reforms. Both are evidence-free blunders by politicians on the make who never stay around long enough to reap the chaos they have created.

The current Coalition is not unique in being made up of twits. They were preceded by decades of fellow twits from the Labour and Conservative parties who thought they had “answers” to the NHS’s often poorly-observed and poorly-evidenced woes. Even when they did by chance identify some defect in the NHS, they generally have failed to resolve it e.g. consultant audit, peer review and accountability

2010: 1976 all over again
See for instance my editorial entitled “What goes around comes around”, which compares the 1976 Labour response to austerity with the McKinsey “report” which informed the “Nicholson challenge” of the current government (Funding health care in times of austerity: what goes around comes around - J Health Serv Res Policy January 2013 18:1—2).

The 1976 and 2010 “experts” both identified variations are “the problem”, but neither offered evidence-based solutions)

Clinical practice variation: background
To vary is normal. Variation is universal!

In the manufacturing and the service sectors, variation is universal. Indeed, variation is a mechanism that encourages innovation. Successful innovators can improve market share and profitability.

Improvement in manufacturing and service quality often comes incrementally, by emulation of rivals’ best practice and by innovation. Innovation leads to either lower costs for the same or a better-quality product at the same cost.

Thus incrementally, we can observe improvements in cars. Producers of rusting, unreliable British Leyland cars were driven out of business by quality and cost controls using a “six sigma” management in the Japanese car industry.

These methods, together with the competition for market share and profits, are also evident in electronics and many other industries exhibiting significant change in recent decades.

In healthcare internationally, there is a large evidence base about variations and much debate about their magnitude. The US literature is dominated by the work of Jack Wennberg and his colleagues at the Dartmouth Health Policy Institute.

Wennberg has contributed to the literature for 40 years and in his recent book “Tracking Medicine” (OUP, 2010) estimates that moving Medicare providers to conservative, safe practice would save 40 per cent of the budget.

Clearly such conclusions are music to the ears of our American cousins implementing Obamacare and facing acute fiscal problems.

However they are disputed by some. For instance, Cooper (Health Affairs, 2009) argues that the Dartmouth approach is flawed because it fails to adequate account of small areas of deprivation in otherwise affluent areas.

Sheiner has criticised the econometric methods of the Dartmouth group (Sheiner, Federal Reserve discussion paper, 2013) and some economists using longitudinal data have estimated the potential Medicare savings at a lower levels e.g. 12- 15 per cent.

McKinsey-itis
In England, the Department of Health contracted McKinsey-itis with the 1974 NHS re-disorganisation. This affliction has proved a continuing and chronic problem, and led recently to another McKinsey report (DH 2009, released 2010). This confirmed to NHS leaders that the extent of variations in the NHS was great and £20 billion of NHS funding could be saved and re-cycled to meet increasing patient demand over four successive financial years.

Now re-named "The Nicholson Challenge” by wily health select committee chair and ex-SOS Dorrell, the delivery of these savings are central to current government policy of magic-ing resources to meet increasing patient demand.

To achieve these savings, the NHS is reducing hospital tariffs radically over three years and seeking to increase efficiency with programmes such as QIPP and CQUIN. These policies appear to have reduced costs, but given the relative absence of outcome measures, there is little or no evidence that they have been efficient i.e. it is unclear whether providers have contracted “Francis disease”; a condition produced by reckless financial manipulation as shown in Mid-Staffs and probably permeating other parts of the cash-strapped and unevenly managed NHS

Reducing variations: buyer beware!
The nature of variation in healthcare is that it is not uniform throughout healthcare systems. It is probable that there are some high-cost hospitals with good outcomes; some high-cost hospitals with poor outcomes; some low-cost hospitals with good outcomes; and indeed some low-cost hospitals with poor outcomes.

Consequently, as PbR tariffs are cut uniformly, some high-cost hospitals with good outcomes may be undermined. Such institutions may, due to economies of scale and more efficient division of labour, produce good patient care and be made bankrupt.

High-cost hospitals with poor outcomes may be unlikely to improve care as tariffs are reduced, as their costs are a product of managerial and clinical inefficiency which have survived 10 years of targets and PbR.

Similarly, low-cost, poor-outcome hospitals may be unaffected by PbR cuts as their finances whilst cut may be adequate to ensure the continuation of poor-quality care.

The financial squeeze will bankrupt 10-20 per cent of Foundation Trusts. Are these high/low-quality entities with good/poor outcomes? If they are expensive slayers of the innocent, how will bankruptcy facilitate their being able to be efficient?

But perhaps this level of analysis alone is too aggregate? Within each of the preceding groups of hospitals, there will be good and poor clinical specialities with high/low costs and good/poor outcomes.

Performance data: still inadequate after all these years
Do their managers know the quality and cost characteristics of each group of clinicians? Sadly not, probably! What data they have is imperfect and their analytical capacity to use it is often absent.

Patient level individual costing (PLICs) systems remain very uneven. Reference cost data remains a mess due to Department of Health laziness in not making the cleaning and timely reporting of such data mandatory, with managerial sanctions for failure.

But even if such data were available, should it be shared between purchaser and provider, or is such information “commercial in confidence”? This information tells hospital managers which “product lines” are profitable and which are loss leaders e.g. ENT?

It makes explicit which are profitable specialities and which loss-making specialties. These groups are products of PbR tariffs, and alone tell us little of care quality.

Monitor licences and commissioner requirements probably make it impossible for cash-strapped hospitals to cease production of loss-making care specialties.

There is a risk that the PbR tariff reduction is too blunt an instrument to produce cost savings and quality consistency of a high degree. Its likely effect is to bankrupt lots of Foundation Trusts.

Why would Whitehall want that?

Why bankrupt hospitals?
As hospitals decline into financial deficit as tariffs are cut, we have a classic example of health policy's favourite game:“pass the parcel bomb”. Instead of CCGs being blown away by financial crises, the hospitals get lumbered with the need to focus on budgetary survival, thereby risking diverting attention from quality control.

As a consequence, CCGs will have the funds to tender services and re-configure service delivery. Their problem will be their capacity to do this ambitious commissioning, when stymied by inadequate managerial numbers and too much inherited NHS managerial caution.

This NHS managerial caution is often the product not just of indifferent skill sets but also of a reluctance to use an often-incomplete evidence base.

The transformation of care has to be done rapidly if chaos is to be avoided in the run-up to the May 2015 general election. The necessity for speed in decision-making and incomplete evidence (e.g. what is community care and is it always more efficient than hospital care, however configured?) makes it inevitable that there will be “errors” i.e. poor care and a growing demand for highly-paid and sometimes useless “turnaround” gurus.

Another reason for bankrupting hospitals is to make them more amenable to merger and “re-configuration”. This may create good outcomes and better costs e.g. the London stroke services.

However, the research literature about hospital mergers has for decades shown that they bring neither better quality nor improved costs (e.g. Posnett, BMJ, 1999 and Gaynor et al, Journal of Health Economics, 2012). The Gaynor paper was funded by the Department of Health but clearly it has not been read by the dear mandarins or is ignored by the Comrade-In-Chief and the Secretary of State!

It was hoped that reducing PbR tariffs would increase hospital efficiency (i.e. drive down cost whilst producing good-quality care). We proceed on a wing and a prayer!

Conclusions
Poor old David Nicholson must regret that the NHS savings policy is named after him: "The Nicholson Challenge”! Success in finding savings is documented in David Flory’s quarter returns.

But as ever, there is scant quality data and lack of clarity about how these savings are being harvested. They mostly accrue from hospitals (primary care savings appear vague), and are increasingly associated with emerging deficits.

The policy instruments to achieve The Nicholson Challenge lack coherence and evidence. Indeed, they are reminiscent of the chaos of the Chinese Cultural Revolution. You will recall that out the misery created in China; a leader emerged who has followed “the capitalist path”. With a potentially failing NHS, the local capitalist class will seek to cream-skim, but will be reluctant to take on services where tariffs offer little scope for profit making.

No doubt Jeremy Hunt has been well-briefed about these issues, and has been encouraged by Cameron to smile his way through to the election. But does he have enough “lucre” to keep the smile on the faces of patients and staff by papering over the cracks as the building shows signs of coming apart?

I hope so as a patient, but I doubt so as a sceptical observer of the NHS over 40 years.