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More than one way to take on key management tasks

Andrew Lansley’s decision to cut NHS managers has been widely welcomed, both by the press and by doctors. But the reality is that the NHS will still need some management and will still need some managers: the question is how much management?

Those commissioning services cannot avoid management activity, although there are two main ways that they could avoid having managers. GPs could buy services from outside or they could do all the management themselves. However, GPs undertaking management tasks will have less time to see patients and will need to hire more GPs to cover the gaps — so the cost is obscured but not removed.

The sort of management tasks commissioners need to undertake cover a wide range of activities. They need to check and pay hospital bills. Another key activity is to analyse health needs and then design and commission the services required to meet those needs within budget.

They also need to monitor the performance of providers so that patients get a good range of high-quality choices of hospital. Equally, successful commissioners will be those who think about future needs and redesign the way patients are cared for. For example, if patients with asthma get better care, they are less likely to end up in hospital with complications, improving outcomes and lowering costs. So how much should the new commissioners spend on management? Private sector companies often spend 10 to 15 per cent of their turnover on management.

Another insight can be gained from the charity sector. American charities are required by law to report their management costs in a way that identifies the management costs of fundraising, operating activity and the decision-making process on spending revenues. The last category is roughly equivalent to the job of a commissioner, though most charities are more focused than an NHS commissioner in what activities they undertake, so their job should be easier.

This comparison suggests that the NHS target for management cost, about 0.6 to 0.8 per cent of the £70 billion GP Commissioner budget, is not only ambitious but off the scale. Only the most extraordinarily frugal charities spend less than 1 per cent on management and administration.

Highly rated charities spend 4 to 8 per cent and some well-regarded medical charities spend more than 10 per cent. The American Red Cross spends 4.5 per cent, the American Cancer Society 7 per cent, Scripps Research Institute 5 per cent and the Mayo Clinic spends more than 12 per cent.

While their activity is not entirely comparable with Britain, they still provide evidence that if central targets for management costs are imposed on the NHS, there is a risk that commissioners will be crippled before they start.

Surely, the right approach would be to give the GPs freedom to spend whatever they want on management, but hold them to account for outcomes and budgets. If those who spend more get better productivity and better outcomes for their populations, then should we care about their management costs?