Higher consulting spending makes NHS trusts less efficient, study suggests

28 February 2018 Consultancy.uk 7 min. read

National Health Service (NHS) trusts which hire management consultants in order to reduce expenditure do not end up saving money, a new study has found. The research suggests that rather than finding efficiency savings, under-resourced hospitals actually end up spending more in the long-run.

As the NHS continues to face real terms budget reductions, following years of austerity cuts to public services across the UK in general, the core social institution is rapidly approaching breaking point, according to various reports. In the first half of 2017, the perilous state of play for the NHS was summed up, when it was rocked by the global WannaCry cyberattack. As a matter of cost-cutting, reports made as early as December 2016 said that 90% of NHS trusts still used the obsolete Windows XP, for which Microsoft had stopped providing security updates in April 2014. This key weakness was exploited by the WannaCry ransomware, and led to the compromising of patient data, as well as the cancellation of operations, as the Health Service ground to a temporary halt.

The NHS is also seeing an increasing workload burdening its depleted workforce. As an ageing population has seen hospitalisation figures rocket in recent years, the cash-strapped organisation has been left creaking under the weight of the new workload. At the same time, while the true impact of Brexit remains an unknown quantity, the prospect of an unwelcoming post-EU Britain is reportedly already putting swathes of skilled migrants off from settling in the country. This has been a major factor in the recent net-fall in the number of nurses currently staffing the NHS, the first such fall since 2013, thanks to a “significant” reduction in EU nurses joining the UK register.

Higher consulting spending makes NHS trusts less efficient, study suggests

This means any expenditure on consulting is often perceived as taking vital funding away from front-line services which citizens have paid for through taxation. As is the case with any industry, management consultants have repeatedly been asked by NHS executives to help provide solutions to such crises, playing a significant role in the growth of the UK’s management consulting market in recent years, which is now estimated as being worth more than £7 billion. According to data released in January by the NHS Improvement, spending on consultants had peaked at £422 million in 2013-14.

Now, however, a new study led by Bristol University suggests that NHS spending on such firms was actually much higher in that period. The document reveals that in 2010 alone, the total consulting bill for the NHS was an estimated as £313million, before doubling to £640million by 2014.

While such figures are often justified by trusts, and consultants alike, as finding untapped areas where so-called efficiency savings can be made, however, according to the researchers, further analysis of this spend by 120 NHS trusts suggests that the more they spend on management consultants, the less efficient they became.

Researchers believe that for every £100,000 spent enacting the advice of consultants, there is a correlation with an extra £900 in costs, amounting to average losses of around £10,600 per trust. Furthermore, while that figure might seem relatively meager, it does not include the actual of NHS trusts on such firms. The study found that the average trust spends £1.2 million a year on management consultants; equivalent to the salary of  35 senior nurses.

The study was published in the journal Policy and Politics, and was the product of a collaboration between experts at the universities of Bristol, Seville and Warwick Business School, who examined data from 120 hospital trusts in England, between 2009/10 and 2012/13,  to measures used to track efficiency.  

Andrew Sturdy, Professor in Management at the University of Bristol, who led the project, said, "Our research has clearly shown that management consultants are not only failing to improve efficiency in the NHS but, in most cases, making the situation worse.”

Industrial response

In response, the Chief Executive of the Management Consultants Association (MCA), Alan Leaman, said that it was up to trusts to be smarter consumers, rather than to rule out investing in consulting work, pointing to "outstanding consulting projects" which have reportedly been beneficial to the NHS, including the use of technology to enhance patient care, reintegrating and personalising care and improving efficiency in the NHS.

While this latest report suggests the contrary, a surprised Leaman told the press, "Much of it (was) based on speculation,” before adding, “The academics behind this research should look at real-life case studies. Like Professor Sturdy, we urge clients to look carefully at how they buy consulting and the value that they derive. Unfortunately, his study won’t help them to do so.”

Leaman also said that the greatest use of management consultants was for the least efficient trusts, to help them improve, before suggesting the report had failed to distinguish between different types of consultants – such as interim managers with value-adding consulting projects – while failing to acknowledge cases where consulting projects “stimulate essential programmes of investment and modernisation, increasing some spending in the short-term in order to deliver better outcomes and effectiveness in the medium and longer-term.”

Quote Alan Leaman, Chief Executive

According to recent management consulting industry analysis from the MCA, health spending on external advisors in the UK fell in real terms last year.

Reduction in spending

The landscape at the NHS has also changed drastically, since the time Bristol University’s paper relates to, in terms of regulations relating to the institution’s consulting spend. With increasing scrutiny being applied as a dissatisfied electorate demanded value for money from consultants supposedly contracted to help cut costs and preserve key-stone services, the most financially troubled trusts have been required since 2015 to seek approval from NHS Improvement (NHSI), the institution’s financial regulator, for any consultancy contract worth more than £50,000.

Commenting on the research from Bristol University, an NHSI spokesman meanwhile said these requirements had helped reduce the overall spend on consultants. Citing figures originally released in January, he said NHS trusts are now spending £263 million a year on management consultants, a £150 million drop since 2013.

The spokesman added, "We are working with all trusts on reducing their costs, which includes spending less on management consultants; and have had some success… In future, we will continue to work with trusts on keeping their consultancy spending to a minimum, and on commissioning it better.”

While the consulting spend seems to have fallen in this respect, however, other recent reports suggest that the consulting industry has found ways of working around the stricter climate, chiefly via the creation of Sustainability and Transformation Partnerships (STPs). The area of NHS work, which is aimed at making all parts of the Health Service work together to ease demand and use money more efficiently, has proved a fertile ground for consultancies, with a 2017 report by leading London-based health think-tank, The King’s Fund, finding that management consultants had permeated the development of three quarters of STP areas.

In one localised example of just how lucrative this manner of operating with the NHS can be for management consultants, a freedom of information request to Maidstone and Tunbridge Wells NHS Trust revealed consultants at Carnall Farrar collected over £6 million in fees between 2015/16 and 2017/18 “to contribute their expertise, capacity, skills and experience of delivering large-scale change programmes” to create the budget cutting plans. Meanwhile, a similar investigation revealed that nationally, healthcare bosses had paid management consultants £21 million to similarly draw up STPs.