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The productivity illusion


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Tuesday, 19 October 2010

The productivity illusion

This week the HSJ identified £3.2bn in savings from reducing regional variations in productivity and nearly £2bn that could be saved by selling off property owned by the NHS.

At this rate, it will take the HSJ about a month to recover the missing £20bn and by around the beginning of the next financial year the NHS will be moving strongly into profit.

It may appear shocking that the productivity gap between the best and worst performing regions amounts to billions of pounds. It doesn't take a tabloid editor long to translate that into thousands more nurses, expensive cancer treatments or hospital beds.

What do the numbers really mean?

In most cases the productivity gap amounts to a few percent, a difference that could be explained by any number of factors. The authors of the report cited by HSJ acknowledge weaknesses in the primary care data, but even if all the data were copper-bottomed it would be highly surprising if there were no regional variations.

When you're dealing with very big numbers, small variations, even statistically insignificant ones, look impressive.

In the Information Centre’s report on estates, we learn that: "The total estates services spend is equal to £3.56bn for the financial year 2008-09. A modest 15 per cent reduction would result in a saving of £533.3m."

The trick is to make a 15% reduction sound "modest", when it's far from it. Put the same percentage in front of "pay" or "life expectancy" for details.

Productivity is easy to measure in manufacturing industries but hard to measure in healthcare. A productive factory turns out widgets at a declining unit cost. A productive NHS has the far tougher job of turning out healthier people at variable cost.

There are two competing ideas of productivity. One is based on output, the other on outcomes. We confuse them at our peril.