15 October 2015
Curbing NHS Costs
Mr Hunt takes action on the amounts paid to agency workers
by John Watson
The Health Secretary Jeremy Hunt has clamped down on the amounts paid by the NHS for doctors and administrative staff supplied by agencies, and he had little choice, politically speaking. The numbers are startling at two levels. First, some of the individual cases are eyecatching. “The Times” newspaper revealed that the Medway Foundation Trust, which overspent by more than £30 million last year, paid £1million for its interim finance director. He must be jolly good if it got its money’s worth.
Then on a macro level, the NHS paid £3.3 billion to agencies last year. That is a significant sum when you bear in mind that this year the health service is expected to end up £2 billion in the red. If 10% of agency spending could be saved, and that seems to be the projection with talk of a billion saving over 3 years, the overall shortfall would be reduced by about a sixth.
No wonder then that the issue is at the top of Mr Hunt’s inbox and that caps have become the order of the day. The latest package which deals with locums and administrative staff is the second in the series. In June an agency staff cap was announced for nurses but it was always envisaged that the principle would be extended to clinical, medical and administrative staff as well. This week the cap for doctors and administrators was announced and the idea is that soon agency staff will have packages equivalent to those who are employed. That does not mean that they are paid identical hourly amounts, but rather that the 55% supplement to which they will be limited from April next year is about the right amount to compensate for lack of sick pay, paid holiday and pensions. In the end then a level playing field for those who are employed and those who contract through an agency.
Put like that it seems very sensible and it has been welcomed by Sir Mike Richards, the Chief Inspector of Hospitals. Still, it is a major change in the market and it is worth considering how things got out of kilter to begin with.
It is interesting here to compare the situation with what goes on in the corporate sector, where remuneration also draws criticism from time to time. There the biggest salaries are paid to the big stars, those who can generate a line of profit that would not otherwise exist. In those cases the level of salary simply reflects the division of the profit between those who create it through their work and those who backed them financially. If it is the personal attributes of Mr X which pulls in the punter, it can only be right that he should take the lion’s share of the rewards – rather as a big-name will take a substantial share of the profits of a film. Perhaps there are doctors or indeed hospital administrators who deserve star style remuneration because of what they bring to the party, but I suspect that, as indeed in business, they are fairly rare.
Then there is the vast majority; businessmen who are not irreplaceable at all; merely good sensible managers doing a job which, although it is important, others could do as well. How does the business sector set their remuneration? The answer to this seems to be that a consensus arises as to what the job is worth and, at least in the case of management of public companies, that figure tends to float up from year to year. That is because the market is not a perfect one. In a typical company, management salaries are not set by going out into the market and trying to replace each director with the cheapest person you can find who is satisfactory. Rather the remuneration committee looks at top management and decides what it is worth. It is at that point that the “remuneration consultant effect” kicks in because the committee will listen to the consultants and the consultants have an interest in edging salaries up, both because that increases the commission on new hirings and because, for some reason, consultancies which tend to edge salaries up are more popular with managers than those which don’t. After all, the main purpose of their report is to justify management packages to the remuneration committee and the shareholders, and in a large quoted group their report will only be challenged if the package looks seriously out of line with competitors. So up, up, by small increments surely but ever upward, drifts the market level, rather like a helium balloon at a fairground whose owner has let go the string. Substitute “Health Trust” for remuneration and shareholders and assume that the benchmarks for agency employed staff are set by consultants and/or the agencies themselves and one can see how upward creep gets into the system of NHS agency workers as well.
The NHS has some real advantages in its fight to contain the cost of agency staff. First it is a monopoly employer and huge in the UK medical marketplace. More importantly, however, it has the comparator of its employed staff to which the agency staff can be tied and against which the amount paid to them can be compared. Of course there will be disputes over the overall package for doctors from time to time, and indeed there is one over the new contracts for junior doctors at the moment, but, following Mr Hunt’s changes, the spectre of agencies creeping up prices outside the national framework of salaries should be a thing of the past.
Those who try to contain salaries of executives in the corporate sector may be a little envious of Mr Hunt’s opportunity.
