Do we need to invest more in NHS administration?

Vivek Kotecha | July 28, 2017 | Blog


Originally published by the National Health Executive, 13th June 2017

All large organisations need a well-resourced administration to deliver a good service. In the British Army, the Royal Logistic Corps is 16% of the entire army making it the largest Corps. In the NHS managers make up 3% of the workforce (versus 11% of the national workforce) and adding in wider ‘NHS infrastructure support’ staff brings the total up to 14% (excluding GP practices). The cost of NHS managers is often brought up as an unacceptable waste of NHS money during election campaigning and NHS England’s Five Year Forward View aims to make around £400m of savings from reducing and streamlining back office costs by 2020. This raises the questions of whether the NHS is spending too much or perhaps too little on administration, and whether the money spent is being invested in the right areas?

Firstly it’s important to make clear what administration is. Its definition can vary and a common one includes managers; ‘central functions’ i.e. payroll, finance, IT, HR, procurement; and estates and property staff, but excludes support for clinical staff.

So how does the NHS compare with other countries’ health systems? OECD data estimates that the UK spends 1.2% of its current health expenditure on NHS administration versus an OECD average of 3%. The administration cost of voluntary health insurance schemes in the UK adds another 1.2% (bringing the overall total to 2.4%) despite covering only 11% of the population. Indeed the OECD data suggests that social health insurance and compulsory insurance schemes incur higher administration expenditure compared to countries where the government sets coverage. It also suggests that single payer systems (by government or social security) have lower costs than multi-payer systems, where payers are competing and consumers have more choice over coverage levels. Government coverage and a mostly single-payer system appear to be reasons why the NHS has a lower administration cost compared with other countries.

The UK’s lower spend does not appear to hinder its ability to provide an internationally comparable service. Patient and physician survey findings from The Commonwealth Fund placed the UK top for co-ordinated care (i.e. information sharing between primary care physicians, hospitals and specialists) and efficiency (such as avoiding duplicate diagnostic tests, unnecessary A&E admissions, and time spent on paperwork). These strengths flow from the advantages of having a national health system which should in principle make data sharing easier than in a system with numerous often competing companies.

However, administration in the English NHS is far from perfect. A Health Select Committee found that since the 1991 purchaser-provider split administration costs had been rising and by 2014 the running costs of the healthcare ‘market’ were estimated to have reached £4.5bn a year in a CHPI report by Calum Paton. The duplication and complexity of administration has increased with over 240 NHS trusts and the creation of over 200 Clinical Commissioning Groups (CCGs) alongside NHS England involved in spending the NHS’s £100bn budget in England. A CHPI report on ‘the contracting NHS’ in 2015 found that there were now 25,000 staff across CCGs and local area teams employed in commissioning, administering, and enforcing NHS contracts at an annual cost of £1.5bn a year.

The unnecessary costs created by duplication in an artificially fragmented system have become an area of focus following a review of variations in operational productivity in acute hospitals by Lord Carter. His report estimated that savings of up to £375m could be made by sharing corporate and administrative back office services (such as payroll) between different hospital and system integration.

Savings such as these are welcome but the Carter reforms focus on improving cost efficiency and do not look into ways to build a better overall administrative system. Staff in NHS administration face outdated IT systems, superfluous paper filing processes, and high staff absenteeism from years of underinvestment in back office functions. Meanwhile the attempt to store patient’s medical information in a single database, via the ‘care.data’ initiative, was axed due to privacy concerns.

Despite these setbacks and challenges investment in these areas is vital, especially as the NHS undergoes another transformation into 44 geographically based Sustainability and Transformation Partnerships (STPs) while the apparatus of CCGs and hospitals remain. A relatively small workforce of managers is responsible for the smooth running of a £100bn plus business (as large as many listed companies). It is important that a resilient and adaptable administrative service is invested in, across the myriad of NHS organisations, to ensure a well-run NHS for both patients and staff.

About the author

Vivek Kotecha

Vivek Kotecha

Vivek is CHPI's Research Officer. He has previously worked as a manager in Monitor and NHS Improvement analysing and reporting on the operational and financial performance of the provider sector. Prior to that he worked as a management consultant at Deloitte for 4 years. Vivek holds a BSc Economics (Hons) from the LSE and is a chartered accountant. He is currently studying for a MSc Economics at the University of London.See all posts by Vivek Kotecha