NHS: Too Big to Manage?

The financial crisis gave us to the concept of organisations too big to fail, but are their also organisations too big to run? With 1.5m staff and a £100bn annual budget, is the National Health Service literally unmanageable?

The NHS tops ministerial problem piles but constant re-organisations have failed to find a solution. Restructurings cause more problems or expose new ones that seem too great for its management.

Private sector executives who study the health service are shocked at what they see but fail to implement serious changes, not least because the scale of the problem requires a massive solution. The prospect of failure, besides the financial rewards, prevent top corporate executives taking on the public sector role.
The scale is illustrated by the recent report from management consultants McKinsey that recommended reducing the workforce by 137,000. Few executives even employ that many. The 45,000 NHS staff absent from work each day exceeds the workforce of Britain's largest manufacturing company.

Part of the problem of managing the NHS is its semi-autonomous structure. It reports to government ministers but is responsible for its own decision-making. Yet ministers rejected McKinsey's report not, presumably, because its solutions would not work but because they would be politically unpalatable. Any manager trying to apply serious business principles to this mammoth organisation faces such interference.

However, although broadly vertically-integrated with GPs referring patients to hospitals, the NHS itself comprises semi-autonomous units such as hospital trusts and the primary care trusts (PCTs) that employ GPs.

Each of these units has its own management structure and boards. Recently the PCTs advertised on one day for 1,800 non-executive directors! That is more non-execs than the whole FTSE 100 employs and, while it may possibly be democratic, it makes decision-making difficult.

Nor can NHS chief executive David Nicholson influence his own revenues. That comes from government, leaving him merely to control spending, which has increased tenfold in real terms since the NHS was founded in 1948. His customers, the 330,000 daily users of the service, have no idea of the cost of their treatment and thus no way to value the service. The £5bn to £7bn a year cuts Nicholson is currently seeking exceeds the turnover of many FTSE 100 companies.

So this is not a business that any corporate executive would recognise. But there is a private-sector precedent for efficiently running an organisation of this size. Not BP, which despite a greater turnover has only 6 per cent of the staff, but Wal-Mart. The US retailer (which, with the Chinese army, is the only organisation employing more than the NHS) does it professionally and profitably.

So the task is not impossible. A successful business model has eluded the NHS managers so far but it is worth persisting. But if the health service is not to prove too big to manage it needs to big managers who have the freedom to make harsh decisions.

(Pic: comedy_nose cc2.0)