In February 2009 McKinsey was instructed by

the Department to provide advice on how

commissioners might achieve world class NHS
productivity to inform the second year of the
world class commissioning assurance system
and future commissioner development. The
advice from McKinsey, in the form of the
following slides, was provided in March 2009.

Department of Health, May 2010

Achieving World Class Productivity
in the NHS 2009/10 – 2013/14:
Detailing the Size of the
Opportunity

March 2009
Summary
▪ The next spending review may well result in significantly lower rates of growth in NHS spending than has been the
case for the last 8 years, resulting in a possible funding gap of £10-15bn in 2013/14 or ~ 10% of spend.

▪ The NHS in England could potentially capture efficiencies in health and healthcare services by between 15 and
22% of current spend, or £13–20bn, over the next 3-5 years.

▪ This reduction could come from

Working Draft - Last Modified 18/03/2009 15:41:52

– technical efficiency savings of £6.0 - 9.2bn found from provider costs
– allocative efficiency savings of £4.7 - 6.6bn due to no longer commissioning low value added healthcare
interventions and ensuring compliance with commissioners’ standards
– savings of £2.7 - 4.1bn from a shift in the management of care away from hospitals towards more cost effective
out-of-hospital alternatives.

▪ Further savings could come from a greater focus on prevention resulting in lower demand for healthcare services
but this would likely not be realised within the next 3-5 years.

Printed 18/03/2009 15:36:55

▪ Achieving a step change in spend on health and healthcare services will require a compelling case for change; the
use of formal mechanisms to drive through efficiency gains; deployment of WCC structures and processes;
removal of national barriers to change; introduction of incentives schemes; and an increase in skills and
capabilities to drive out costs.

▪ We recommend a nationally-enabled programme delivered through the SHAs and PCTs to drive through efficiency
savings. The DH should take direct actions to capture some opportunities e.g. lowering tariffs. And should enable
delivery by creating a compelling story, removing barriers, developing frameworks/tools and embedding the drive
for efficiency gains within existing mechanisms e.g. WCC.

McKinsey & Company | 1

Contents

▪ The challenge and size of the opportunity

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▪ Detailing the opportunities

▪ Implications

▪ Making it happen

Printed 18/03/2009 15:36:55

▪ Backup: Methodology and assumptions

McKinsey & Company | 2

Macroeconomic context has dramatically worsened in the last 12 months

… and the numbers confirm the crisis in

Bad news is everywhere … the real economy
Real GDP growth
Percent

Working Draft - Last Modified 18/03/2009 15:41:52

4,0

3,5

3,0

2,5

2,0

Printed 18/03/2009 15:36:55

1,5

1,0

0,5

0
2006 2007 2008 2009
-0,5

-1,0

McKinsey & Company | 3

Source: BEA, McKinsey analysis
Declines in health care spend are typically observed after a crisis across
European countries
Negative year-on-year
Share of European countries experiencing negative year-on-year health care growth
within two years
health care growth within 2 years of negative GDP growth
As percentage

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Oil crisis1 Post-Soviet destabilization2
(1980-83) (1988-93)

23

41

Printed 18/03/2009 15:36:55

59

77

1 Austria, Belgium, Denmark, Germany, Iceland, Ireland, Luxembourg, Netherlands, Portugal, Spain, Sweden, Switzerland and UK
2 Belgium, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Italy, Norway, Poland, Portugal, Spain, Sweden,
Switzerland, UK

SOURCE: OECD McKinsey & Company | 4

In the UK, after the private sector recession comes the
public sector one Total government spending

Growth in public spend in real terms in the UK, % Total government spending less social
security and debt interest
Percentage increase after economy-wide inflation
%
15

1973-74 – Oil crisis

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10 Early 1990s
Early 1980s recession
recession

Printed 18/03/2009 15:36:55

-5
Public spend substantially
squeezed after recession
years
-10
1985-86

1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1986-87
1987-88
1988-89
1989-90
1990-91
1991-92
1992-93

2002-03
1983-84
1984-85

1999-00

2007-08
2000-01
2001-02

2003-04
2004-05
2005-06
2006-07
1970-71
1971-72

1980-81
1981-82
1982-83
1972-73
1973-74
1974-75
1975-76
1976-77
1977-78
1978-79
1979-80

Financial year
McKinsey & Company | 5
Source: Institute for fiscal studies
The next spending review period from 2011/12 will be much
tougher with a potential funding gap of £10-15bn.
£ billion. NHS England allocations and expenditure, 1999/2000 to 2013/14 estimated
Allocations growth 1.5% p.a.
Allocations growth 0% p.a.
Spend1
120

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110 Potential
gap £10-15bn
100

90
Assuming funding allocation
80 grows between 0%- 1.5% from
2011/12 and current levels of

Printed 18/03/2009 15:36:55

70 productivity and demand

60

50

40
0
99/00 01/02 03/04 05/06 07/08 09/10 11/12 13/14

12.5% inflation, except for drugs 5.5%; activity growth based on 98-06 trend. Assumes spend and allocations balanced in 2009/10 and 2010/11
Note: Excludes NHS pensions (£14bn), Capital Expenditure (£4.5bn) and Excludes Personal Social Services (£1.5bn),
Source:Department of Health Annual Reports, Operating Framework 2009/10 and 2010/11, McKinsey analysis McKinsey & Company | 6
Historically, activity has lagged spend largely due to the labour costs
pressure both in acute care and primary care
Index 99/00=100
190
Total NHS
180 Spend – real2

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170

160

150
Average cost
140 per WTE1
Primary care
130

Printed 18/03/2009 15:36:55

consultations3
FCEs
120
Hospital
110 admissions

100 OP attendance

90
99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07
1 Includes acute and mental health care NHS trusts
2 GPD deflator used
3 Includes GPs and nurses
McKinsey & Company | 7
SOURCE: HES online; Hospital activity statistics; Information centre; IMF; Q-Research, McKinsey analysis
 Potential scope for improvement (on a recurrent basis) of £13-20bn or
15-22% of the current NHS spend
£bn. 2013/14 recurrent potential savings, England. Potential size of the ESTIMATE
opportunity; part cash, part
reinvested in improved care
Non tariff
Tariff and other
13.4 – 19.9
national levers 0

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2.7 - 4.1

4.7-6.6
6.0-9.2

45%

55%

Printed 18/03/2009 15:36:55

Realise cost Optimize spend Shift care into Increased Total potential
efficiencies in all and ensure more cost prevention efficiencies
provider services compliance with effective settings
standards
% reduction vs. 08/09
6-10% 5-7% 3-4% 0% 15-22%
NHS spend

Technical Allocative
efficiency efficiency

1-3 years 3-5 years + 5 years

McKinsey & Company | 8

The specific opportunities for improvement include the following

Drive through costs efficiencies in all provider services Optimize spend and ensure Shift care into more
compliance with standards costs effective setting

1 2 3 4 5 6 7 8
Driving Driving non Supply Estates Optimising Enforcing Enhancing Local health
acute -acute chain and optimisation spend PCT self care & economy

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provider provider procure- within care contracts/ chronic reconfigura-
productivity productivity ment pathways standards disease tions
mgment.
• Reduce • Community • Reduce drug • PCTs and • Stop • Conduct • Unscheduled
variation in services spend providers’ procedures utilisation care
clinical and • Mental • Optimize estates with no/ reviews • Shifting
non-clinical health and supply chain costs limited acute care to
staff LD and • PFI clinical primary/
productivity providers procurement schemes benefit community/
• GPs of clinical • Target most home care

Printed 18/03/2009 15:36:55

and non costs
clinical effective
supplies interventions

McKinsey & Company | 9

 Breakdown of the potential through the implementation of the ESTIMATE
identified opportunities Programme number
£bn. 2013/14 recurrent potential savings. England
8 13.4-19.9
7 0.8-1.6
6
1.9-2.5
5
1.1-1.7

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4
3.7-4.9
3
2 0.5-0.6
2.3-3.7
1
1.3-1.9
1.9-3.0

Drive acute Driving Supply Estates Optimising Enforcing Enhancing Local Total
Programme
providers’ non-acute Chain/ optimisa- spend PCTs self care health potential

Printed 18/03/2009 15:36:55

productivity providers’ procure- tion within care contracts/ and economy
productivity ment pathways standards chronic reconfigur-
diseases ations
mgment
Current
spend 22 15 29 5 63 56 19 24 92
£bn

% reduction 9-14% 8-12% 8-13% 11-14% 6-8% 2-3% 10-13% 4-7% 15-22%
vs. 2008/09
spend

McKinsey & Company | 10

The overall effort can be structured around 16 programmes to include both
the opportunities and the required enablers
9
Applicable to capture the
value

Drive through costs efficiencies in all provider Optimize spend and ensure Shift care into more costs
services compliance with standards effective setting

1 2 3 4 5 6 7 8
Drive acute Drive non - Supply Estates Optimising Enforcing Enhancing Local health
provider acute chain optimisation spend PCT self care economy
productivity provider within care contracts/ and chronic reconfigura-

Working Draft - Last Modified 18/03/2009 15:41:52

productivity pathways standards disease tions
mgment.
Market structure/
management
9
9 9 9 9 9 9
Mechanisms to capture

Tariff and
reimbursements
10
9 9 9 9 9 9 9 9
9 9 9 9 9 9 9
GPs/Consultants 11
contracts

Personal budgets and12

9 9 9 9 9

Printed 18/03/2009 15:36:55

financial incentives

Commissioning tools13
& enforcing contracts 9 9 9 9 9 9 9 9
Workforce
14
9 9 9 9 9 9 9
Barriers/
enablers

9 9 9 9 9 9 9
15
IT

Capabilities
16
9 9 9 9 9 9 9 9
McKinsey & Company | 11
Contents

▪ The challenge and size of the opportunity

▪ Detailing the opportunities
– Drive cost efficiencies in all provider services

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– Optimize spend and ensure compliance with
commissioners' standards
– Shift care into more cost-effective settings

▪ Implications
▪ Making it happen

Printed 18/03/2009 15:36:55

▪ Backup: Methodology and assumptions

McKinsey & Company | 12

Break-down of potential opportunities to drive-through cost ESTIMATE
efficiencies in all provider services Programme number
£bn. 2013/14 recurrent potential savings. England
4 4 15
3 6.0-9.2
0.4 0.1-0.2 0***
3 1.1-1.9

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2 1.2-1.8
1
1.3-1.9
1.9-3.0

Acute Non acute Drug Supply Estates PFI restruc- IT spend Total
staff staff spend2 chain optimisation turing optimisation potential of

Printed 18/03/2009 15:36:55

productivity productivity optimisation driving
through cost
efficiencies
in providers
Current spend
22 15 12 17 3.3 1.3 2.6 92
£bn

% reduction vs. 9-14% 8-12%1 10-15% 6-11% 11-13% 11-17% n/a 3 6-10%
2008/09 spend

1 It includes 11-15% for community services, 8-12% for mental health care and 5-9% for primary care
2 Includes £450m savings from the already negotiated PPRS scheme McKinsey & Company | 13
3 Although potential efficiencies exist, it is assumed that savings will be reinvested (key enabler and low IT spend)
1 Acute providers – Potential savings of £1.9–3.0b if all providers below
the median productivity achieve 50–80% of the potential improvement of
stepping up to the median
£b, 2008/09. Acute staff costs

Potential savings
22.0

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£b % of spend
1. 9–3.0 19.0–20.1 1.9–3.0 9–14 Key opportunities
Non clinical staff 5.0
0.4–0.6 7–11
▪ Increase nurses
4.4–4.6 patient-facing time
Other non-clinical 3.2
2.6–2.8 0.4–0.6 11–18 ▪ Increase throughput of
Pay diagnostics
costs Nurses 8.1 ▪ Reduce variability of

Printed 18/03/2009 15:36:55

7.0 –7.4 0.7–1.1 9–14 FCEs per doctor (±
50% difference top
and bottom quartile)
Doctors 5.7
5.0–5.3 0.4–0.7 8–13 ▪ Standardise pathways

Total acute Potential Total acute

staff costs acute staff staff costs,
efficiency acute staff
productivity
improv.

SOURCE: The Information Centre for Health and Social Care 2007 – Workforce Census; National Audit Office –
McKinsey & Company | 14
Summarised Accounts Care purchased by PCTs; HES Online; McKinsey analysis
 1 Acute providers – £1.5–2.4bn savings if all providers below the median of
clinical staff productivity achieve 50–80% of the potential improvement of
stepping up to the median
Current productivity levels,
FCE/staff member
Percentile Doctors Nurses Other clinical staff

Working Draft - Last Modified 18/03/2009 15:41:52

9–14%*
Top decile 264 93 284 opportunity to
improve
productivity
Top quartile 231 87 246
X
50% of budget
Median 204 75 206
X

Printed 18/03/2009 15:36:55

£33b acute
Bottom quartile 159 61 148 commissioning
spending
Bottom decile 46 16 29 =
£1.5–2.4bn
Potential 0.4-0.7 0.7-1.1 0.4-0.6
savings from
productivity
increase, £bn

* Top of range: bottom performers stepping up to 80% of the median (e.g., for doctors from 159 to 195). Bottom of the range: bottom performers step up to 50% of the median
(e.g., for doctors from 159 to 182) McKinsey & Company | 15
Source: HES data, National Audit Office, McKinsey analysis
 1 Acute providers – In addition, £0.4–0.6bn savings if all providers below the
median of non clinical staff productivity achieve 50–80% of reaching the
median

Ratio of non clinical

staff to clinical staff

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Percentile Index 7–11%* opportunity
to improve
Top decile 1,01 productivity
X
Top quartile 0,89 280,000 non-clinical
staff
Median 0,79

Printed 18/03/2009 15:36:55

X
£20,000/FTE/year
Bottom quartile 0,66 =
£0.4–0.6bn
Bottom decile 0,56

* Top of range: bottom performers stepping up to 80% of the median (e.g., for top quartile from 0,89 to 0,81). Bottom of the range: bottom performers step up to 50% of the
median (e.g., for top quartile from 0.89 to 0.84 ) McKinsey & Company | 16
Source: HES data, National Audit Office, McKinsey analysis
1 Acute providers – nurses spend only 41% of their time on
patient care
% of time spent by nurses on acute and general medicine wards Direct patient
care

Non-patient care time Patient care time

100

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14

12
6
7
15
41
5

Printed 18/03/2009 15:36:55

16 25

Available Motion Paper Hand- Discus- Medication Others Patient Psycho- Physical
time work over sion adminis- care social care of
and and with tration care of patients
adminis- coordi- other (away from patients
tration nation nurses the patients)

Source: Wards observation McKinsey & Company | 17

1 Acute providers – Study across FTs found only 55% of community
midwives time is spent on patient facing activities
Overall mean activity breakdown per day (2006), %
100% = 8.6 hours

100% 3%

Working Draft - Last Modified 18/03/2009 15:41:52

17%

22%
3%
1%

22%
2.8

Printed 18/03/2009 15:36:55

55%

Average Breaks/ Travel Admin* Other Classes Postnatal Antenatal

time lunch time
worked

* Admin also includes phone calls, texting, emails, meetings

McKinsey & Company | 18
Source: Benchmark Trusts, Foundation Trust Network
1 Acute providers – potential to increase CT throughput by 50-100%
Number of CT scans per machine per hour of operation. 2006

4.0
3.8

Working Draft - Last Modified 18/03/2009 15:41:52

3.3

2.2
1.8 1.9
1.4

Hospital X Hospital Y Hospital Z Canadian U.S. AMC High volume Theoretical

Printed 18/03/2009 15:36:55

hospital example example capacity

Key levers to increase throughput

• Reduce downtime e.g., scheduling, patient ready
• Reduce rework
• Standardize process e.g., consistent protocols

McKinsey & Company | 19

1 Acute providers – Potential to increase usage of the clinical rooms in
80%* of the potential slots > 80%
50 - 80%
Clinical room usage < 50%

Monday Tuesday Wednesday Thursday Friday Saturday Sunday

Clinic room A

Morning 75% 35% 53% 91% 34% 45% 10%

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Afternoon 80% 60% 85% 45% 56% 45% 15%

Evening 80% 60% 65% 45% 56% 45% 5%

Clinic room B

Morning 75% 35% 53% 91% 34% 45% 10%

Afternoon 80% 60% 85% 45% 56% 45% 15%

Printed 18/03/2009 15:36:55

Evening 80% 60% 65% 45% 56% 45% 5%
Clinic room C

Morning 75% 35% 53% 91% 34% 45% 10%

Afternoon 80% 60% 85% 45% 56% 45% 15%

Evening 80% 60% 65% 45% 56% 45% 5%

McKinsey & Company | 20

* Assumes target utilisation 80% or more
1 Acute providers – Opportunity to increase day surgery rates
Day cases as proportion of total activity by specialty, %, London
Actual rate
Recommended
37 rate
Breast Surgery
63
38
Gynaecology

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76
42
Vascular 51
42
General Surgery 56
42
Head and Neck Surgery
52

Printed 18/03/2009 15:36:55

44
Orthopaedic Surgery
61
45
Urology 76
46
Total 65
47
ENT 58
84
Ophthalmology
86
McKinsey & Company | 21
Source: HES, British Association of Day Surgery
1 Acute providers – Variability of sickness rate highlights
opportunities for increase staff productivity
Sickness rate1 2005, Percent

By organisation type By strategic health authority

Ambulance trust 6.0 North East 5.3

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North West 5.1
Mental health and
5.3 East Midlands 4.8
community trust
Special health West Midlands 4.6
4.6
authority
South West 4.5
Acute trusts 4.4 East of England 4.4

Printed 18/03/2009 15:36:55

Yorkshire and
PCT 4.2 4.3
the Humber
London 4.1
SHA 2.8 South East 4.1

England 4.5 4.5

1 Time lost through absence as percent of total staff type excludes maternity leaves, carers leave and periods of absence agreed

Note: GPs and their staff not included in these figures

McKinsey & Company | 22
Source: NHS Sickness Absence Survey 2005
2 Non-acute providers – Potential savings of £1.3–1.9b through reducing
variability in staff productivity of GPs, community services providers
and mental health providers
£b, 2008/09. Non acute staff costs
Potential savings
15.4 £b % of spend

Working Draft - Last Modified 18/03/2009 15:41:52

Key opportunities
1.4 – 1.9 13.5 –14.1 1.3–1.9 8–12
GP, MH &
▪ Reduce variability in
4.7 the number of daily
community serv.
4.1– 4.3 0.4–0.6 8–12 visits of the district
nurses and health
Pay visitors
cost Mental health 6.3 ▪ Reduce variability in
5.4 – 5.6 0.7–0.9 11–15 the LoS of the mental
healthcare providers

Printed 18/03/2009 15:36:55

▪ Increase the number
GPs 4.4 of GPs appointments
4.0 -4.2 0.2–0.4 5–9
available and/or hours
worked by GPs
Total non Potential Total non
acute staff efficiency acute staff
costs, excl. costs, after
central staff
budgets productivity
improv.
SOURCE: National Audit Office – Summarised Accounts Care purchased by PCTs, GP Systems, GPs Earnings and
McKinsey & Company | 23
Express Enquiry, Workforce Census; McKinsey analysis
2 Community services – Potential to deliver same level of activity with 11–
15% less staff, if district nurses achieved median productivity or 10%
above
PCT EXAMPLE

Average number of daily visits by nurse in specified Impact of reducing variability of district nurses
period in a PCT, 2008 productivity

Working Draft - Last Modified 18/03/2009 15:41:52

%
Median number Required number of
of daily visits by nurses for current
24 24 nurse level of activity
Visits/day N. of FTEs
20

Current
5.6 100
12 situation

Printed 18/03/2009 15:36:55

8 -11%
Potential if under-
4 4
2 performing DNs1 6.3 89
1 1 achieve the median

Average 1–2 2–3 3–4 4– 5 5–6 6–7 7–8 9–1010– 11– Potential if under- -15%
daily 11 12 performing DNs1
6.6 85
visits achieve 10% above
the median

1 District nurses
McKinsey & Company | 24
Source: 3-month sample of district nurses in provider arm of a PCT; McKinsey analysis
2 Community services – One PCT has identified a set of initiatives to
increase efficiencies of service line services by c. 15%
PCT EXAMPLE

Share of savings
Efficiency improvement initiatives % of budget 08

1 Adjust skill-mix of Service line staff 8.0

Working Draft - Last Modified 18/03/2009 15:41:52

2 Reduce administrative time by employing more admin. staff 3.3
and intro of lean processes

3 Reduce management time of lower band staffs 1.0

4 Streamline travel routes of clinical staff 1.0

Printed 18/03/2009 15:36:55

5 Reduce data entry team once EMIS Web is fully functional 0.7

6 Replace night sitting agency staff with permanent staff 0.6

Total 14.6

McKinsey & Company | 25

2 Mental health – Potential to reduce beddays by 8–12% if providers achieve
50-80% of the potential improvement of stepping down to median ALOS

ALOS of mental health providers

Number of days. England. 2006-07

Working Draft - Last Modified 18/03/2009 15:41:52

112
107

100
98

87
84
80 80
77 76
73
70 69
68
66 65 65
63 63 62 62
61 61
60 58 58

Printed 18/03/2009 15:36:55

56 56 55 55 54
53 53 52 Median=56
52 52 51
50 49 49 48
48 47 47
46 44
44
41 40
38 38
32
27

Note: Excludes data points with fewer than 25 spells

McKinsey & Company | 26
SOURCE: HES 2006/07 – Mental health HRGs codes only (T); McKinsey analysis
 2 Mental health – Crisis resolution teams can reduce the need for
admissions by 40–50% based on controlled trials Control group
Group supported by CRT1

Description of randomised
controlled trial Admission rates, %

ƒ 260 residents of the Inner 8 weeks after 6 months after

Working Draft - Last Modified 18/03/2009 15:41:52

London borough of Islington the crisis the crisis
who where experiencing
crisis severe enough for 59 67
hospital admissions to be Psychiatric
considered ward
22 29

ƒ Compare admission rates

and satisfaction of the group 13 18

Printed 18/03/2009 15:36:55

Crisis
of 135 who received care House
from crisis resolution team 19 24
(experimental group) vs. the
group of 125 who receive the
69 75
standard inpatients services
Overall -48% -37%
and community mental
36 47
health teams support
(control group)

1
Crisis resolution team
McKinsey & Company | 27
SOURCE: BMJ August 2005
2 Mental health providers – Examples of initiatives undertaken by two PCTs
to improve the value for money of MH and LD services
Savings identified
As percentage of
Total
current spend
£m Key initiatives
%
9 -18% ▪ Individual Packages of Care (IPCs): enforce a

Working Draft - Last Modified 18/03/2009 15:41:52

Northamptonshire £11 - 22m
contractual framework with all MH/LD providers
PCT and develop direct payment for social care IPCs
▪ Transform block contract into an activity-driven
contract and tender services
▪ Develop local MH/LD facilities when cost
effective

Buckinghamshire £2 - 2.5m 3 - 4% ▪ Managing MH contract issues and tendering out

Printed 18/03/2009 15:36:55

PCT services to realise savings
▪ Reducing out of area LD placements
▪ Quantifying risk in continuing care and improving
procurement and review processes
▪ Exploring changes to commissioning to improve
value for money of Head Injury Placements
▪ Review joint commissioning of children’s services
and opportunities for savings in PCT provider arm
▪ Delivery of LD performance management and S31s

Note: LD: Learning Disabilities; MH: Mental Health McKinsey & Company | 28
2 Primary care providers – Potential GP productivity improvement could be
worth of £0.2–0.4bn, if weak performers achieve standard performance

Sessions per week 7 7 7

per WTE
If we assume that
X
• 5–10% of total GPs

Working Draft - Last Modified 18/03/2009 15:41:52

18 are very weak
Appts per session 15
11 performers
• 15–25% of total GPs
=
are typical weak
Total appts per week performers
126 105
per WTE 77 X

31,000 WTE GPs in

England

Printed 18/03/2009 15:36:55

Potential GP WTE X
savings if standard 0.64
£22,000–70,000
performance achieved 0 0.20 potential savings for
each GP stepping up
to standard
Potential GP money £70,000k performance
savings if standard £22,000k =
0
potential achieved
£0.2–0.4bn
Standard Very weak Typical weak
performer performer

Potential savings of £22,000–70,000 if a GP becomes a standard

performer, depending on the starting level of performance
Note: Assumes average GP salary of £108k per year
McKinsey & Company | 29
Source: Data extracts from GP systems; McKinsey analysis
2 Primary care providers – A low-performing GP can spend less than
30% of their contracted hours actually seeing patients
Number of hours
37.5

8.5

Working Draft - Last Modified 18/03/2009 15:41:52

-51%
5.0 -71%
0.5
5.0
18.5
2.2
1.7
1.7

Printed 18/03/2009 15:36:55

1.9 11.0

Contract Admin CPD GP On-call Allocated Appts. Appts. Urgent Covered Time
ed hours Forum to appts lost to lost to slot, by spent on
DNAs tea brks not used locum direct
patient
* Not including patients seen whilst on-call
care*
McKinsey & Company | 30
Source:Interviews with PCT and practices; McKinsey analysis
2 Primary care providers – GPs performance in access indicates that
c.10% are very weak performers and c.25% are typical weak performers

Number of GP practices. 2007/08

409 408 407
398
385 383

Working Draft - Last Modified 18/03/2009 15:41:52

361
357 354 355

25% of the GP practices 329

perform 5-20% worse 310 308

than the median 289 285

244 249

214
202
193
8% of the GP practices perform 20%

Printed 18/03/2009 15:36:55

worse or more than the median 141 133
151
138 137
132
112
100

74 73 75 71
58
41 50 51
21 35 34
28 29
13 8 16 20 15 14 19 19
1 2 1 4 3 3 3 3 5 3 3 6 6 6 6

30 33 38 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 10
0

% able to make an appointment within 48 hours Median

88%

McKinsey & Company | 31

Source: The Information Centre for Healthcare and Social Care – GP Patient Access Surveys 2007/08; McKinsey analysis
3 Drug spend – Potential savings of £1.2–1.8b through pulling
different price and volume levers
£million, 2008/09. Drugs spend
Potential savings
£b % of spend
11,800 450
10,000- 10,600 1.2-1.8 10–15
Secondary 360-600
2,500 170-280 110-210

Working Draft - Last Modified 18/03/2009 15:41:52

care 60-160 60-110
2,200-2,300 0.2-0.3 8-12

Primary
9,300 7,800-8,300
care 1.0-1.5 11-16

Printed 18/03/2009 15:36:55

Current Reduce Reduce Increase Optimise Increase Reduce Spend in
spend in branded variability generics hospital clawback whole- drugs
drug drug price in prescri- penetra- drugs to salers’ after
– PPRS bing tion procure- pharmacy revenues efficiency
scheme practices ment pro-
(GPs) gramme

SOURCE: Office of Fair Trade – Financial Flows Relevant to Medicines; DH – PPRS 2009; Laing & Buisson NHS
McKinsey & Company | 32
Financial Report, Espicom; Euro Observer 2008; DHL website; McKinsey PMP Practice
3 Drug spend – PPRS 2009 agreement expected to deliver savings of
450m p.a. from 2010-11 onwards

Total expenditure on prescription medicines in Pharmaceutical Price Regulation Scheme 2009

England – Branded drugs agreed price reductions/increases
£billion. 2005/06 %. 2009-2013

Working Draft - Last Modified 18/03/2009 15:41:52

Historical growth
of 6% p.a.

7.1

1.6
5.5

Printed 18/03/2009 15:36:55

-3.9
-1.9
0.2 0.2
0.1 -5.3
2009 2010 2011 2012 2013 Total
Primary care- Secondary care Total spend in 2009-13
Bx spend – Bx spend branded drugs

McKinsey & Company | 33

Source:Office of Fair Trading: PPRS – An OFT evaluation survey; DH PPRS 2009; McKinsey analysis
3 Drug spend – After the recently negotiated PPRS scheme, the U.K.
branded drugs prices would be more aligned with the rest of Europe
Bilateral comparisons of ex-manufacturer prices, 2005
UK = 100 in 2005 PPRS scheme recently agreed with the
industry with a
• 3.9% reduction in 2009/10
108 • 1.9% additional reduction in 2010/11
103 101 100

Working Draft - Last Modified 18/03/2009 15:41:52

96 96 95 95 95

84 84

Printed 18/03/2009 15:36:55

Germany Ireland Finland UK before France Austria Nether- Belgium Estimated Italy Spain
2009 lands UK after
PPRS the 2009
scheme PPRS
scheme

McKinsey & Company | 34

Source: OFT Report on PPRS February 2007, McKinsey analysis
3 PCTs’ prescribing costs – Potential savings of £0.4-0.6bn, if PCTs achieve
the median or 80% of the potential of stepping down to bottom quartile

Prescribing cost per age need weighted population* by PCT Typical sources of
£/capita, 2007/08 inefficiencies

Working Draft - Last Modified 18/03/2009 15:41:52

192 • Unexploited
switches to
cheaper
alternatives with
Median: £151/pop1 identical outcomes
Bottom quartile: • Avoidable
£140/pop1 specialist and
restricted drug
spend

Printed 18/03/2009 15:36:55

85 • Waste reduction
• Lack of formulary
• Supply chain
inefficiencies

1 Age need weighted population

McKinsey & Company | 35
Source: Laing & Buisson NHS Financial Reports; DH Exposition book; McKinsey analysis
3 Supply chain/procurement: although significant savings already
captured, there is still an opportunity estimated at £1.1–1.9b
£million. 2008/09. Clinical and non clinical supplies spend, excl. drugs and estates
ƒ10-15% savings on
3-5% potential GP supplies
savings ƒ7-12% for the rest Key opportunities
17.2 ▪ Extend the national

Working Draft - Last Modified 18/03/2009 15:41:52

GP spend in supplies 0.7 0.1
1.0–1.8 15.3–16.1 procurement contracts
Central budgets 3.4 to other categories,
Clinical including central
and non budgets and capital
clinical Capital expenditure
4.9
supplies, expenditure ▪ Accelerate
excl. drugs implementation of
& estates PCTs – Opex 1.7 collaborative hubs
costs

Printed 18/03/2009 15:36:55

▪ Enforce PCTs/Trusts
NHS Trust – Opex 6.5 to buy through PASA
contracts/frameworks
▪ Improve inventory
managements
Clinical and Savings on Savings on Clinical and
non-clinical purchases purchases non-clinical
supplies under PASA not under supplies
spend, excl managed PASA spend, excl
drugs and contracts managed drugs and
estates contracts estates, after
efficiency
SOURCE: National Audit Office – Summarised Accounts; NHS Purchasing and Supply Annual Report 2007/08, DH –
McKinsey & Company | 36
Departmental Report 2008, McKinsey analysis
3 10% to 15% savings on external spend can be typically achieved
through a comprehensive procurement project
Percent savings based on 75 projects since 1997
50 Cleaning supplies 19
Microfilming
Office equipment 19
Waste removal 43
Travel 18
Employee food discounts 40

Working Draft - Last Modified 18/03/2009 15:41:52

Filters 35 Laboratory services 17

Elevator service 34 Computer equipment 15

IT maintenance 30 Capital equipment 15

Weighted, 14
Printing 29 Telecommunications
average savings
Clinical engineering 29 = 13% Consultants 11

Cardiology products 27 Facility maintenance 11

Printed 18/03/2009 15:36:55

Office supplies 26 10
Postage
Business forms 22 Medical and surgical 10
supplies
IT programming 22 9
Miscellaneous hardware 8
Blood products 21
Contract labor 8
Electrical/electronic parts 21
Linen and laundry 7
Paint 20
Laboratory supplies 6
Plumbing supplies 20
Orthopedics 1
Food services 20

McKinsey & Company | 37

Source: McKinsey PSM database
 3 The Supply Chain Excellence Programme aimed and captured £0.5bn
savings out of £15bn spend, equivalent to 3% of the spend

Initial savings New targeted Final savings

estimate - 2004 savings - 2005 achieved – 2007/08

Working Draft - Last Modified 18/03/2009 15:41:52

National
Contracts 240 407 240
Procurement1

Collaborative
Procurement 270 326 270

Printed 18/03/2009 15:36:55

Hubs

Total 510 733 510

1 Includes expected savings from Wave 1 and Wave 2

Source: SCEP – Reference Pack for McKinsey- August 2005 –DH Commercial Directorate, NHS
McKinsey & Company | 38
supply and procurement agency annual report 2007/08
4 Estates optimisation – Potential savings of £0.4b if PCTs and
trusts optimise utilisation of their estates
£million. 2007/08. Estates costs

3,340 380 - 435

160-190
95-105
PCT 500 290-305 145

Working Draft - Last Modified 18/03/2009 15:41:52

10 10

MH&C 585

2,905 – 2,960
2,740 - 2,795

Providers 2,255

Printed 18/03/2009 15:36:55

Current PCTs Mental Health Acute PCT MH&C Acute Estates costs
estates costs, & community providers providers after
excluding optimization
central Savings from estates optimisation1 Additional estates costs from upgrading and upgrading
agencies facilities2 of facilities
£545-600m. £165m.

1 Calculated as trusts below median reaching median or 80% of top quartile value in sq.m. per bed or sq.m. per WTE. Same assumption applied to
capture savings from vacating currently unused space McKinsey & Company | 39
2 Calculated to reach Condition B (“the asset is sound, operationally safe and exhibits only minor deterioration”) and associated annual estates costs
 4 Potential savings of £130-160*m from vacating current unoccupied
space at providers’ and PCTs estates…
Opportunity to optimize space use if providers and PCTs vacate between 80-
100% of the unoccupied space

Vacant space as proportion of total space, %

Percentile Acute Mental health

Working Draft - Last Modified 18/03/2009 15:41:52

providers and community PCTs

Top decile 0 0 0 Current vacant space

725,000 sq.m. (providers)
and
Top quartile 0 0 0 190,000 sq.m. (PCTs)
X
Median 1.6 3.0 2.3 £172/sq.m.** (providers)

Printed 18/03/2009 15:36:55

and
£183/sq.m.** (PCTs)
Bottom quartile 4.6 7.7 7.5
=
£100-125 m (providers)
Bottom decile 8.5 11.8 14.3 and
£28-35 m (PCTs)
Potential
savings from 72-90 28-35 28-35
release, £m

* Range assumes 80% of maximum to maximum possible vacant space is disposed of

** Extremely conservative as costs generally taken to be £300-400/sq.m. McKinsey & Company | 40
Source: NHS Information Centre: Estates Returns Information Collection 07/08; McKinsey analysis
 4 … and additional potential savings of £0.4bn from better use of
providers’ and PCTs’ estates
Opportunity to optimize space use if all providers step down to median or 80% of top
quartile in use of sq.m./bed or sq.m/ WTE
Occupied space per bed, Occupied space per
Sq.m./bed WTE, Sq.m./WTE 15-16% potential
Percentile Acute Mental health improvement in provider

Working Draft - Last Modified 18/03/2009 15:41:52

providers and community PCTs space utilization
and
Top decile 47 18 5,9 31-39% improvement in
PCT space utilization
X
Top quartile 61 56 9,1
10.5m sq.m. (providers)
and
Median 70 74 14.4 2.1m sq.m. (PCTs)

Printed 18/03/2009 15:36:55

X
Bottom quartile 85 93 22.6 £172/sq.m.* (providers)
and
£183/sq.m.* (PCTs)
Bottom decile 109 120 43.0
=

Potential £0.26-0.28 bn (providers)

0.20-0.21 0.06-0.07 0.13-0.15 and
savings from
optimization, £0.13-0.15 bn (PCTs)
£bn

* Extremely conservative as costs generally taken to be £300-400/sq.m. McKinsey & Company | 41

Source: NHS Information Centre: Estates Returns Information Collection 07/08; McKinsey analysis
4 On the other hand, additional estates costs of £165m would be incurred
to upgrade current “poor” facilities
Additional estates
Capital expenditure to bring ALL Space to be upgraded costs of upgrading
current facilities to Condition B to Condition B estates
£000 £ sq.m. £ sq.m.

Working Draft - Last Modified 18/03/2009 15:41:52

1,785 165
PCTs 950
140 10
Mental Health 125 1,000 10
& Communities

1,140
60 45

Providers 1,520 145

Printed 18/03/2009 15:36:55

1,035
4,000

Total expected Total adjusted Annual estates

investment in investment ,assuming costs of
bringing estates vacant space disposed upgraded
up to condition B of is the lowest quality facilities to
Condition B

McKinsey & Company | 42

Source: NHS Information Centre: Estates Returns Information Collection 07/08; McKinsey analysis
 4 Estates costs – Trusts’ asset utilisation varies sixfold
Revenue to fixed asset by trust*, average 2002/3 – 2004/5. Percent

450%

400%

Working Draft - Last Modified 18/03/2009 15:41:52

350%

300%
If all trusts step up to
250% the average or the top
quartile £3.3 – 8.3 bn.
200% in assets could be
freed up
150%

Printed 18/03/2009 15:36:55

100%

50%

0%
50 100 150 200
Least Most efficient
efficient trust trust

* Acute and mental health trusts

McKinsey & Company | 43
Source: Laing & Buisson financials; National Asset Register 2007; Team analysis
4 Estates costs – PCTs can also take out estates costs by
renting/selling not used site PCT EXAMPLE
2008, Book Value in £m

Sites empty or with

services to be moved to
> 65% of the land is property home care

Working Draft - Last Modified 18/03/2009 15:41:52

either empty or used for
services that are planned to Examples of key
65.8 35.3 be provided at home efficiency initiatives
• Review PCT-
owned assets and
evaluate options to
sell/rent vacate
sites
• Consolidate sites
partially occupied

Printed 18/03/2009 15:36:55

7.7 and dispose of
surplus assets
5.6 • Drive up utilisation
4.6 of estates, e.g.,
3.6 sharing rooms, hot-
2.9 desking
1.2 4.9 • Explore renting vs.
ownership options

Total PCT Health Commu- Health Health Health Health Health Others
land book care nity care care care care care assets
value centre A hospital A centre B centre C centre D centre E centre F

McKinsey & Company | 44

Source: PCT finance department
4 … and consolidating and driving up utilisation of existing space
through increased sharing of space
TODAY: primary and community care services MORE EFFICIENT MODEL: Consolidate, drive
provided with a very high fixed cost base and up utilisation, take out costs (and support
low utilisation and dedicated rooms, e.g., GPs integration and better quality care)
GP practice Efficient provision for pop’n of ~ 100K
Typical provision for

Working Draft - Last Modified 18/03/2009 15:41:52

pop’n of ~ 100K Health centres,
children’s centre
Community Therapy
hospital Urgent care services
Outpatient
centre (24x7) clinics

Printed 18/03/2009 15:36:55

Day case Base for
surgery unit community
teams

Maternity Inpatient care

services
GP services

McKinsey & Company | 45

 4 PFI restructuring – renegotiating the interest charges of 80% of the PFI
schemes by 2–3bp1 could reduce financing cost by £0.1–0.2b.
£ billion. 2008/09 – 2013/14

~9.5 Key opportunities

1.3 ▪ Renegotiate interest

Working Draft - Last Modified 18/03/2009 15:41:52

0.1–0.2 1.1–1.2 rates charges taking
advantage of
– Reduction in interest
rates (from 5.5% in
2008 to 0,5% in
March’09)
– Government
guarantee to borrow

Printed 18/03/2009 15:36:55

– Limited ability of the
PFI holders to
borrow and need of
Total average Average Potential Average some for cash
book value of annual reduction on annual PFI
PFI schemes payments for interest payments after
(2009–13) PFI schemes charges re-negotiation
(2009–13) (2–3b.p.1)

1 Basic points
McKinsey & Company | 46
SOURCE: Treasury; McKinsey analysis
4 PFI restructuring – in the new context of low interest rates, worth
exploring renegotiating the PFIs to lower the £1.3bn annual payments

Majority of PFI schemes negotiated in times of Worth exploring the possibility of using the
high interest rates, typically paying 6-8% interest government guarantee to renegotiate the interest
rate, and everybody could borrow money charges, given the large size of annual payment

Working Draft - Last Modified 18/03/2009 15:41:52

Bank of England official bank rate, 2001-2009.% PFI forecast unitary payments 2008-2013, £m
% of unitary charge
6 over PFI book value

5
1,515
1,384
4 1,227 1,284
1,082

Printed 18/03/2009 15:36:55

3

0
2001 2009 2009/10 2010/11 2011/12 2012/13 2013/14

12% 14% 14% 14% 14%

McKinsey & Company | 47

Source: Bank of England, Treasury
Contents

▪ The challenge and size of the opportunity

▪ Detailing the opportunities
– Drive cost efficiencies in all provider services

Working Draft - Last Modified 18/03/2009 15:41:52

– Optimize spend and ensure compliance with
commissioners' standards
– Shift care into more cost-effective settings

▪ Implications
▪ Making it happen

Printed 18/03/2009 15:36:55

▪ Backup: Methodology and assumptions

McKinsey & Company | 48

 ESTIMATE
Break-down of potential opportunities to optimise spend
and ensure compliance with standards
Programme number
£b, 2013/14 recurrent potential savings, England
6
4.7–6.6

5 1.1-1.7

Working Draft - Last Modified 18/03/2009 15:41:52

5 2.8–3.4

0.8–1.5

Stop/reduce Target most costs Conduct utilisation Total potential of

Printed 18/03/2009 15:36:55

procedures with effective reviews optimizing spend and
no/limited clinical interventions ensuring compliance
benefit with standards

Current spend 16 47 56 92
£b
% reduction vs. 5–9% 6–7% 2–3% 5–7%
2008/09 spend

SOURCE: McKinsey analysis McKinsey & Company | 49

5 Decommission non-effective interventions – Potential savings of
£0.8–1.5b through enforcing compliance with commissioners’ standards
£b, 2008/09
Potential savings
£b % of spend
15.8
0.8-1.5 14.3–15.0 0.8–1.5 5–9 Key opportunities

Working Draft - Last Modified 18/03/2009 15:41:52

Diagnostics 1.5
1.4 0.1–0.2 7–12
2.3
▪ Decommission relatively
Follow-up OP
1.3–1.4 0.2–0.3 9–13 ineffective interventions –
New OPs 1.8 e.g., tonsillectomy or
1.5–1.6 0.2–0.3 14–22 potentially cosmetic
interventions
▪ Provide decision aids to
patients to reduce rates of
EL + day care 10.2 9.5–9.9 0.3–0.7 3–7 discretionary surgery

Printed 18/03/2009 15:36:55

▪ Reduce variability in GPs’
new OP referrals
▪ Enforce target follow-up to
Total current Potential saving Total spend new OP ratio by specialty
acute spend from decom- after ▪ Reduce variability in GPs
missioning decommissio- referrals for diagnostics
non/limited ning non/limited
effective effective
interventions interventions

SOURCE: LHO - Save to invest; HES Online; DH payment by results tariff, National schedule of reference costs, tariff
McKinsey & Company | 50
uplift; McKinsey analysis
5 De-commission procedures with limited clinical benefit could drive
savings of £0.3–0.7bn.1 across England (1/2)
Potential reduction Potential savings
Minimum Maximum Minimum Maximum
% % £m £m
A
▪ Tonsillectomy 10 90 5 45.1
Relatively
▪

Working Draft - Last Modified 18/03/2009 15:41:52

ineffective Spinal cord stimulation 0 50 0 25.2
interventions ▪ Back pain – injection and fusion 20 90 5.3 23.7
▪ Grommets (surgery for glue ear) 10 90 2.3 20.6 £20–115m1
▪ Knee washouts 20 90 4.5 20.3
▪ Trigger finger 10 33 1.8 5.8
▪ Dilation can curettage for women < 40 10 70 0.4 2.5
▪ Jaw replacement 5 10 0.5 0.9

Printed 18/03/2009 15:36:55

B
▪ Minor skin surgery for non-cancer lesions 10 25 29.8 74.4
Potentially
cosmetic ▪ Inguinal, Umbilical and Femoral Hernias 25 50 24.8 49.5
interventions ▪ Incisional and Ventral Hernias 10 75 3.4 25.5
▪ Aesthetic surgery – Breast 50 80 11.2 17.9
▪ Varicose Veins 20 80 4.4 17.7 £80–165m1
▪ Aesthetic surgery – ENT 20 60 3.1 9.2
▪ Other Hernia procedures 10 30 1.9 5.8
▪ Aesthetic surgery – Plastics 20 95 1.1 5.2
▪ Aesthetic surgery – Ophthalmology 20 30 1.8 2.7
▪ Orthodontics 5 80 0 0.2

1 Assumes that only 80% of the maximum potential is achieved

Note: Cancelled procedures not included in analysis McKinsey & Company | 51
Source: LHO – Save to invest: Developing criteria-based commissioning for planned health care in London; HES 2006/07; McKinsey analysis
5 De-commission procedures with limited clinical benefit could drive
savings of £0.3–0.7bn.1 across England (2/2)
Reduction, % Potential savings. £m
Minimum Maximum Minimum Maximum
C
Effective ▪ Knee joint surgery 15 30 59.0 118.0
interventions with a ▪ Primary hip replacement 15 30 46.2 92.5

Working Draft - Last Modified 18/03/2009 15:41:52

close benefit/ risk
balance in mild ▪ Hip and knee joint revisions 15 30 33.2 66.4
cases ▪ Cataract surgery 5 25 11.3 56.6
▪ Female genital prolapse/stress 10 25 6.2 15.6
incontinence (surgical)
£160–300m1
▪ Wisdom teeth extraction 0 24 0 11.0
▪ Dupuytren’s contracture 10 33 2.0 6.7
▪ Cochlear implants (inner ear surgery) 0 25 0 4.5

Printed 18/03/2009 15:36:55

▪ Other joint prosthetics/ replacements 15 30 1.8 3.6
▪ Female genital prolapse/stress
5 25 0.1 0.6
incontinence (non-surgical)
D
Effective interven- ▪ Hysterectomy for non-cancerous heavy 10 70 11.5 80.6
tions where cost menstrual bleeding
effective ▪ Carpal tunnel surgery 10 33 4.1 13.5
alternatives should £18–85m1
▪ Elective cardiac ablation 5 50 0.9 8.6
be tried first
▪ Anal procedures 5 15 1.2 3.6
▪ Bilateral hip surgery 15 30 0.4 0.7

1 Assumes that only 80% of the maximum potential is achieved

Note: Cancelled procedures not included in analysis McKinsey & Company | 52
Source: LHO – Save to invest: Developing criteria-based commissioning for planned health care in London; HES 2006/07; McKinsey analysis
5 Variation in medical practices may be appropriate but sometimes
suggest waste of resources or inequity (1/2)
Example 1: Tonsillectomy

Today, children from deprived wards areas are much more

likely to have their tonsils removed

Working Draft - Last Modified 18/03/2009 15:41:52

• Over time, accepted
indications for tonsillectomy
have been strictly defined
• If the rate of tonsillectomy
was the same as the top fifth
most affluent children, c.
8,000 operations could be

Printed 18/03/2009 15:36:55

avoided p.a. and over £6m
saved

McKinsey & Company | 53

Source: The Chief Medical Office on the state of public health – Annual Report 2005
5 Variation in medical practices may be appropriate but sometimes
suggest waste of resources or inequity (2/2)
Example 2: London hospitals - hysterectomy

Royal free Hampstead

St. Mary’s
Chelsea and Westminster
Hornerton

Working Draft - Last Modified 18/03/2009 15:41:52

King’s college
Barnet and chase farm
Newham
• Clinical studies show that
St. George’s
West Middlesex between 5-84% of the
Hammersmith hysterectomies were not
Kingston appropriate
The Whittington
Mayday Healthcare
• If the average rate of
Lewisham hysterectomy could be
NW London hospitals reduced to the rate of the

Printed 18/03/2009 15:36:55

North Middlesex 20% lowest, then 5,900
Ealing
Hillingdon
operations costing £15m
Whipps cross could be avoided
Barking, Havering and Redbridge
Queen Mary’s Sidcup
Barts and the London
University college London
Guy’s and St.Thomas’
Epsom and St Hellen
Bromley
Queen Elizabeth

0 10 20 30 40 50 60 70 80 90 100 110
Patients per 100,000

Source: HES 2005–06, ONS mid-year female population estimates. Hospital-specific rates are crude rates based on McKinsey & Company | 54
hospital episodes; Trusts with fewer than 10 observations not included; LHO, HSJ
5 Providing decision aids to patient will be one of the mechanisms to
reduce rates of discretionary surgery
Percentage of patients deciding to have a procedure
0% 25% 50% 75%
CA-

Working Draft - Last Modified 18/03/2009 15:41:52

Prostatectomy

Coronary bypass*

Hysterectomy
.

Printed 18/03/2009 15:36:55

Mastectomy

Standard Care
Mastectomy* D-Aid

RR=0.76 (0.6, 0.9)

Bphprostatectomy

Source: O’Connor et al., Cochrane Library, 2007 McKinsey & Company | 55

 5 Reducing variance of GP referrals for new outpatient appointments
could lead to savings of £0.2-0.4bn. across England
PCT EXAMPLE
Worst GPs to specialty’s mean SAR* Worst GPs move to 80% of the
specialty’s top quartile SAR*
% appts % appts
£k saving saved £k saving saved

Working Draft - Last Modified 18/03/2009 15:41:52

General Med 304 25.6 547 45.9
Trauma & Ortho 232 9.5 355 14.6
Dermatology 218 15.7 396 28.6 If this PCT
potential savings
General Surgery 217 13.2 325 19.8 from reducing
Ophthalmology 208 13.2 291 18.5 variance in GP
referrals for new
Pediatrics 177 21.0 269 31.8 outpatients is
25.6 40.0 extrapolated to all
Plastic Surgery 155 242

Printed 18/03/2009 15:36:55

PCTs in England,
Cardiology 154 14.7 222 21.3 potential savings
10.9 of £240-380m
Gynecology 142 251 19.4

Obstetrics 120 11.7 192 23.6

ENT 110 12.2 158 17.4

Audiological Med 108 21.4 185 36.6

76 11.7 115 17.8

Urology
68 12.0 102 17.8
Oral Surgery
Overall* £2,291 13.8% £3,652 21.8%

* Adjusted Standardized Activity Ratio (SAR) represents the difference between the expected and the actual admissions per population adjusted for deprivation. An SAR
value of 100 means the actual number of admissions was the same as the expected number. McKinsey & Company | 56
Source: Doctor Foster 2006-07 data
 5 Potential savings of £0.2-0.3b, if PCTs achieve the median follow-ups to
new OP ratio or 80% of the potential of stepping down to bottom quartile

Impact of reducing ratio of OP follow-ups to new to the median or

80% of the potential of stepping down to the bottom quartile
Follow-up to new ratio – All acute
hospitals in England. 2006-07

Working Draft - Last Modified 18/03/2009 15:41:52

Percentile 9–13%1 reduction
in OP follow-up
Bottom decile 1,50 attendances

X
Bottom quartile 1,91 29m. OP follow-up
attendances

Printed 18/03/2009 15:36:55

X
Median 2,16
£79 average price
per OP follow-up
Upper quartile 2,46
=
£200- 300m
Upper decile 3,27

1 Top of range: underperformers achieve 80% of the potential improvement of stepping down to bottom quartile. Bottom of the range: underperformers step
down to the median McKinsey & Company | 57
Source: HES data 2006/07, Mckinsey analysis
 5 In the US, there is strong evidence that physician self-referral
leads to inappropriate utilization of diagnostics
Relative frequency of doing an imaging examination
Self-referring vs. radiologist-referring physicians1 Imaging charges per episode of care (ratio)

Condition Imaging examination

Working Draft - Last Modified 18/03/2009 15:41:52

4.2 Chest x-ray
Acute upper
respiratory symptoms 6.2

4.5
Pregnancy Obstetric ultrasound
7.5

4.5

Printed 18/03/2009 15:36:55

Low back pain Lumbar spine X-ray
4.8

4.0 Excretory study2

Difficulty urinating (men)
4.4

In general, self-referrals led to four times more use

of imaging examination and a total cost of
diagnostics per episode of care that would be
between 4.4 and 7.5 times more
1Based on analysis of 60,000 episodes of outpatient care by 6,400 physicians 2 Urography, cystography, or ultrasonography
Source: McKinsey
BJ Hillman et al., “Frequency and costs of diagnostic imaging in office practice – a comparison of self-referring and radiologist-referring physicians,” & Company
323 NEJM | 58
(Dec. 6, 1990);
JM Mitchell & E Scott, “Physician ownership of physical therapy services. Effect on charges, utilization, profits, and service characteristics,” 268 JAMA (October 1992)
 5 Potential savings of £95-140m by reducing variation in three types of
diagnostic referrals
Potential improvement if PCTs step down to median or 80% of the top
quartile in the number of diagnostics per 1,000 weighted population
Number of diagnostics per 1,000
weighted population
Percentile CT scans MRI scans Ultrasounds

Working Draft - Last Modified 18/03/2009 15:41:52

9 – 16% potential
Top decile 35.7 20.1 58.1 improvement in
these three
Top quartile 39.8 23.3 67.1 investigations
X
Median 46.6 25.9 80.0 8m. diagnostics

Printed 18/03/2009 15:36:55

X
Bottom quartile 52.9 29.3 93.1
£70 – 295 per
diagnostics
Bottom decile 64.4 34.3 103.0
=
% £95 – 140m
improvement 11-16 10-13 9-16
savings

Potential
27 - 42 40 -53 27- 46
savings, £m

McKinsey & Company | 59

Source: Department of Health Diagnostic Waiting List Returns; DH Exposition book 07/08
5 Readmission rates: Variability in performance between SHA indicates
opportunity of £60-100m1 if median or 80% of top quartile achieved
Emergency admissions within 28 days of discharge from hospital. Adults of ages +16. 2006/07

Standardised
readmission rate
Strategic health authority Percent

Working Draft - Last Modified 18/03/2009 15:41:52

North East 10.77
North West 10.58
London 10.58
East midlands 10.27 Opportunity to reduce
admissions by 0.2%-
Yorkshire and the Humber 10.13
0.4% if SHAs achieved
South East Coast 10.05

Printed 18/03/2009 15:36:55

median or 80% of top
South Central 9.76 quartile performer
South West 9.65
West Midlands 9.64
East of England 9.63

Median 10.10

Top quartile 9.65

1 Not included as part of the total potential efficiency
McKinsey & Company | 60
SOURCE: HES NCHOP FY 2006/07 and National Statistics, team analysis
5 Targeting most cost-effective interventions could lead to savings
of £2.8-3.4bn
Example: congestive heart failure (CHF) pathway in a PCT of ~1 million population

-1.0

Working Draft - Last Modified 18/03/2009 15:41:52

PCT spend -1.5 If we assume that
0.5 PCTs can optimize
£m
10-15% of their spend
Decommission Commission more Net impact on targeting the most
less cost-effective cost-effective PCT spend cost-effective
interventions interventions interventions1,
potential reduction in
spend without any
change in the life

Printed 18/03/2009 15:36:55

years of the
population is
0 estimated at £2.8-
Life years +8.200 3.4bn. (6-7% of
gained/lost -8.200 current PCTs spend2)
Number of
years Impact of Impact of Net impact on
decommissioning commissioning life years
less costs effective more cost-effective gained
interventions interventions

1 Based on CHF example, assumption is that PCTs can target interventions 3 times more cost-effectively McKinsey & Company | 61
2 Includes total PCT commissioning spend excluding drugs, estates costs and clinical and non clinical supplies spend
5 It is feasible to prioritise interventions…
Example: congestive heart failure

Calculat-
Most effective Eligible Current Target Cost to ed cost/
Interventions population perf., % perf., % LYG* PCT £k LYG*, £ Rank

8 Diuretic 3,390 90 95 1,148 66 58 2

Working Draft - Last Modified 18/03/2009 15:41:52

Initial 9 ACE inhibitor 3,390 78 90 808 152 188 4
treatment
10 B blocker 3,390 55 75 1,501 327 218 5

13 Spironolactone 407 85 95 111 -60 0

Severe/
14 Digoxin 407 83 95 0 -53 0

Printed 18/03/2009 15:36:55

refractory

25 Smoking 1,468 10 50 2,166 390 180 3

cessation
Secondary 1
26 Vaccination 6,118 75 95 4,296-5,949 227 38-53
prevention
28 Community 6,118 50 75 0 n.a. 0
monitoring

29 Exercise 6,118 50 90 5,065 4,725 933 6

* Life years gained

McKinsey & Company | 62
Source: Mckinsey analysis
5 It is feasible to identify which interventions will deliver maximum
return in order to de-commission less cost effective interventions
Example: congestive heart failure
£500,000
Life years gained
Decommission or reduce
commissioning of the lowest

Working Draft - Last Modified 18/03/2009 15:41:52

16,000 cost interventions…

14,000

12,000

10,000

8,000 8,247 life

years

Printed 18/03/2009 15:36:55

6,000 gained

4,000

2,000 commissioning of most

… and increase
costs effective intervention in line with the
0
best practices standards
0 1,000 1,500 5,500 6,000 £k
Vaccination Smoking ACEB blocker Exercise
Diuretics cessation
McKinsey & Company | 63
6 Conduct utilisation reviews – potential savings of £1.1–1.7b, equivalent
to 2–3% of current commissioning spend
£b, 2007/08
U.S.. German and
UK experiences
70.8 indicates potential of
3–5% of total spend
MH and LD1 9.5

Working Draft - Last Modified 18/03/2009 15:41:52

11.8
Community serv. 8.4 3.3 55.7 54.0-54.6
1.1-1.7

Acute care 33.7

Printed 18/03/2009 15:36:55

Primary care
19.2
services

Total PCTs’ Spend in Estate costs PCT spend Potential PCT spend
revenue drugs (PCTs and subject to savings after
allocation (primary & providers) utilisation from utilisation
secondary reviews conducting reviews
care) utilisation
reviews
1 Mental health and learning disabilities
SOURCE: McKinsey experience in U.S., Germany and U.K. National Audit Office – PCT Care purchased by PCTs; Office McKinsey & Company | 64
Fair Trade – Financial Flows relevant to medicines, ERIC, McKinsey analysis
6 Conduct utilisation reviews: Application of protocols in a trust resulted
in identification of c40%* patients who did not require admission

Community resources
needed (Carer, Home
equip etc.) = 36
Just go home= 13

Working Draft - Last Modified 18/03/2009 15:41:52

Refuse Discharge = 9
Direct admit from GP =1

Sub acute or Skilled care 150 Patients not requiring

on discharge= 31 admission (39%*)

Printed 18/03/2009 15:36:55

Admission: social reasons,
risk factors= 7
In hospital test/ therapy
delays= 38

Discharge to a lower level

(NH) of care needed= 1

* Total sample of 383

McKinsey & Company | 65
Source: Interqual (McKesson)
6 Reduce upcoding: Typical areas of upcoding challenge and/or
requiring utilisation review

Elective/ other challenges Non-elective challenges

▪ Excess Bed Days ▪ Excess Bed Days

Working Draft - Last Modified 18/03/2009 15:41:52

▪ Daycare instead of regular day attender ▪ Increase in NEL Short Stay after CDU
(excluding Respiratory) capacity increase

▪ Same day readmissions EL ▪ NEL Readmissions within 14 days

▪ Outpatient procedures instead of DC ▪ Inappropriate CDU/PEAU/AMU stays

tariffs
▪ Short Stay Tariff not applied

Printed 18/03/2009 15:36:55

▪ Excess charges for high-cost drugs
(IPPD drugs spend in excess of plan) ▪ Same day Readmissions NEL

▪ Patients admitted more than once on

same T-code

▪ Unbundled tariff

McKinsey & Company | 66

Contents

▪ The challenge and size of the opportunity

▪ Detailing the opportunities
– Drive cost efficiencies in all provider services

Working Draft - Last Modified 18/03/2009 15:41:52

– Optimize spend and ensure compliance with
commissioners' standards
– Shift care into more cost-effective settings

▪ Implications
▪ Making it happen

Printed 18/03/2009 15:36:55

▪ Backup: Methodology and assumptions

McKinsey & Company | 67

Break-down of potential opportunities to shift care into more cost-effective
ESTIMATE
settings
£bn. 2013/14 recurrent potential savings. England Programme number

8
Assumes previous 2.7 - 4.1
opportunities for efficiency
and effectiveness
improvement are achieved1
7 0.8 - 1.6

Working Draft - Last Modified 18/03/2009 15:41:52

1.9 – 2.5

Printed 18/03/2009 15:36:55

Enhance self-care and Shifting care to lower Total potential from
management of patients cost settings shifting care to more
with LTC/complex needs cost-effective settings
Spend after efficiency
opportunities achieved1 19 24 43
£bn
% reduction vs. 10-13% 4-7% 6-9%
2008/09 spend

McKinsey & Company | 68

1 Average of the minimum and maximum potential improvement used (15% of current spend)
7 Chronic disease management: £1.9 – 2.5bn savings could be achieved
through enhanced programmes
£b, 2007/08

Assumes 10-13% potential

savings based on experiences
22.5 in US and Germany
COPD Key opportunities
0.8 0.5
▪ Increase self care

Working Draft - Last Modified 18/03/2009 15:41:52

Asthma 3.3 19.2
Cancer 4.6 e.g. patient
1.9-2.5 16.8-17.3
information, blood
pressure test at
Diabetes 4.6 home, …
▪ Enhanced chronic
disease management
– Patient database

Printed 18/03/2009 15:36:55

CVD 12.0
– Incentives for
enrolment and
commitment
– Targeted contacts
Total current Cost reduction Spend in Potential Spend in
spend in from chronic savings chronic
chronic efficiencies diseases after through self diseases after
diseases already efficiencies care and efficiency
identified 1 already enhanced improv.
identified1 programmes

1 Driving through productivity improvements in all providers and optimizing spend (average savings assumed)
SOURCE: British Heart Association; Cancer Reform Strategy DH; DH Publications Diabetes; British Lung Association, McKinsey & Company | 69
Healthcare Commission Facts about COPD
7 Integrated systems like Kaiser Permanente are 20% more cost
effective than other competing systems

Kaiser Permanente cost advantage vs. all plans

(including HMOs PPO and POS plans)
% of cost advantage

Working Draft - Last Modified 18/03/2009 15:41:52

Mid Atlantic states 24 ▪ By creating a continuum of care,
integrated systems are more cost
Southern California 23 effective because
– Providers do not have an
Northern California 21 incentive to overtreat patients
but rather to keep them healthy
– Providers focus on preventive
Georgia 19
measures and therapies that

Printed 18/03/2009 15:36:55

are most cost effective
Ohio 16 – Tests/procedures are not
needlessly duplicated or
Colorado 12 competing treatments
prescribed

North West 5

Overall cost advantage = 19%

SOURCE: Hewitt’s Health Value Initiative (HHiV) – evaluating financial efficiency and plan performance McKinsey & Company | 70
8 Uk has relatively high hospital spending which is driven by high
use of hospital care
Hospital expenditure/ No. of discharges 2004-7
capita, 2004-7 Per 100,000 residents
EUR, adjusted to PPP Austria 27,852
France 26,780
UK 23,711
US 1,552 Germany 20,149
UK hospital

Working Draft - Last Modified 18/03/2009 15:41:52

Norway 17,345
Denmark 17,031
UK 1,160 Sweden 16,002 spending has
Australia 15,786 been driven by
Median 15,786
Norway 1,157 Switzerland 15,722 high utilisation
US 12,093
Switzerland 1,147 Spain 10,838
Japan 10,343
Denmark 994 Netherlands 10,169
Canada 8,751
Japan 916 X
Average cost per case

Printed 18/03/2009 15:36:55

Median 900 EUR, adjusted to PPP; 2004-7
Australia 884 US 12,833
Japan 8,838
France 881 Canada 8,638 Despite relatively
Netherlands 8,385 lower cost per
Switzerland 7,294
Netherlands 853 Norway 6,673 case
Median 6,253
Canada 756 Denmark 5,834
Spain 5,662
Germany 740 Australia 5,598
UK 4,892
Spain 614 Germany 3,671
France 3,291

* Or most recent available year McKinsey & Company | 71

Source: OECD Health Data 2007, McKinsey calculations
8 Shifting to lower cost settings – Potential savings of £0.8-1.6b through
transforming unscheduled care and shifting care to primary care
£b, 2008/09

27.7 Potential savings

Working Draft - Last Modified 18/03/2009 15:41:52

£b % spend Key opportunities
OP + Day 4.1
23.6
case+ RA and 8.8 0.8-1.6 22.0-22.8 0.8–1.6 4–7 ▪ 45% of A&E
diagnostics attendances are
7.5 minors
7.0-7.3 0.2–0.5 2–7
▪ Admissions for ACS
conditions (those that
should not require an
admission) account for
Unscheduled
18.9 10-15% of non-
care

Printed 18/03/2009 15:36:55

16.1 15.0-15.5 0.6–1.1 4–7 elective spend

▪ Significant number of
OP attendances, day-
cases and diagnostics
Total spend Cost Total spend Potential Total spend could be delivered in
that could be reduction that could be savings from after shifting GP surgeries or
shifted to from shifted to shifting to to lower cost polyclinic
lower cost efficiencies primary lower cost settings
setting already care/home settings2
identified1 settings after
identified
efficiencies
1 Driving through productivity improvements in all providers and optimizing spend
2 Net savings after the cost of providing the care in the new settings McKinsey & Company | 72
SOURCE: HES online, National Audit Office – Summarized Accounts Care Purchased by PCTs, McKinsey analysis
8 Shift care to lower cost setting: Twofold variation in non elective
admissions per population* by PCTs

Large variation of non elective admissions per population* by PCT

Potential initiatives to target
Non elective admissions per age weighted population by PCT. Admissions/ capita* unscheduled care spend
2006/07
▪ Urgent care centres
165

Working Draft - Last Modified 18/03/2009 15:41:52

– Triage centre
– Primary care services at
front end of A&E
Median: 126 NEL
admission/pop ▪ Upgraded role of single
point of access

▪ Clinical assessment unit

86
▪ Proactive care for people
with complex needs and

Printed 18/03/2009 15:36:55

long-term conditions

▪ Discharge facilitation
(with the Provider Arm)

▪ Increased range of out-of-

hospital services
– Out-of-hour services
– Develop better access to
diagnostics

* Age weighted population

McKinsey & Company | 73
Source: PCTs spend, Mckinsey analysis
8 Shift care to lower cost setting: Reducing unscheduled care spend…

A&E attendances

Working Draft - Last Modified 18/03/2009 15:41:52

Emergency admissions
Excess bed days
▪ ~45% of A&E ▪ ~30% of emergency admissions are ▪ The average
attendances short stays (0 days LOS) and ~10% excess bed days
are minors are for people with complex health is ~10 days
needs/frequent users (4+ admissions
per year)

Printed 18/03/2009 15:36:55

▪ Admissions for ACS conditions (those
that should not require an admission)
account for 10-15% of non-elective
spend

SOURCE: PCT analysis, 2006/7 McKinsey & Company | 74

8 … through a combined portfolio of 7 initiatives targeting the 3 main
areas of spend in unscheduled care
Impact
Emergency
Reduce A&E admissions Excess
Initiatives attendances avoidance bed days
1▪ Urgent care centers 9 (9)*
– Triage center

Working Draft - Last Modified 18/03/2009 15:41:52

• These initiatives
– Primary care services at front end of A&E
– Multidisciplinary primary care services at must be
A&E to take care of ambulatory patients implemented
simultaneously to
2▪ Upgraded role of single point of access 9 9 maximize their
impact
3▪ Rapid response services 9 9
• Failure to
4▪ Proactive care for people with complex 9 9 implement one or

Printed 18/03/2009 15:36:55

needs and long-term conditions (LTCs) more initiatives
(includes frequent fliers) has a direct impact
5▪ Clinical assessment unit (CAU) 9 9 on the savings to
be captured by the
6▪ Discharge facilitation (in conjunction with (9)* (9)* 9 implemented
Provider Arm), e.g., through unique care initiatives
model pilot

7▪ Increased range of out-of-hospital services 9 9 9

– Out-of-hour services
– Expand range of services in practices
– Develop better access to diagnostics
* (9) indirect effect
McKinsey & Company | 75
Source: Team analysis
8 Estimated savings from transforming provisioning of
unscheduled care estimated at £0.6-1.1bn
£b.

Assumes previous 1.0 - 1.7

opportunities for efficiency
and effectiveness
0.4 - 0.6
improvement are achieved1

Working Draft - Last Modified 18/03/2009 15:41:52

0.6 – 1.1
0.7 - 1.2

0.3 - 0.5

Avoided A&E Avoided non- Total savings from Cost of Total net savings

Printed 18/03/2009 15:36:55

attendances – elective shifting unsche- providing in from shifting the
treated in UCC/ admissions duled care to the lower costs unscheduled care
walk-in clinics/ lower costs setting to lower cost
GPs settings – before settings
reprovisioning
costs
Comissioning costs after
productivity improve-
1.5 15
ments achieved £bn
35% of
% of potential cost 20-32% 5-8% savings
savings

Source: National Audit Office Summarized Accounts; HES online, team analysis McKinsey & Company | 76
8 Shifting day and OP care from acute to primary/community care is more
cost effective even factoring costs of building new facilities
Annual impact of shifting OP and day care. £m at today’s prices.

5.8 1.5

Working Draft - Last Modified 18/03/2009 15:41:52

4.3

2.9

1.4 Equivalent to
2-7% savings
of the care
0 shifted to the

Printed 18/03/2009 15:36:55

polyclinic
PCT New model Additional cost: Net savings Additional costs Net impact on
I&E of care ▪ Diagnostics from shifting to upgrade I&E
efficiencies at the LCCs care out of facilities of
▪ Consultant hospital existing services*
travel time (assuming not
▪ Additional upgrading of
community estates)
services

* Includes upgrading of facilities for GPs, community services, team bases, mental health trust moving to new polyclin
McKinsey & Company | 77
Source:OBC models, team analysis
8 Assuming similar potential savings for all other PCTS, potential savings
from shifting acute care to primary care of £0.2-0.5bn
£bn

Assumes previous opportunities

for efficiency and effectiveness
improvement are achieved1

Working Draft - Last Modified 18/03/2009 15:41:52

8.8
0.6
1.3 7.5
0.2-0.5 7.0-7.3
4.1

4.1

Printed 18/03/2009 15:36:55

Current Current Current Total current Cost Total spend Potential net Total spend
spend in spend in OP spend in spend that reduction that could be savings – after shifting
day case attendances regular could be from shifted to after repro- care to lower
attenders shifted to identified lower cost visioning cost setting
lower cost efficiency1 setting, after costs
setting opportunities identified
efficiency
opportunities

1 Driving through productivity improvements in all providers and optimizing spend

McKinsey & Company | 78
Source:OBC models, team analysis
Contents

▪ The challenge and size of the opportunity

Working Draft - Last Modified 18/03/2009 15:41:52

▪ Detailing the opportunities

▪ Implications

▪ Making it happen

Printed 18/03/2009 15:36:55

▪ Backup: Methodology and assumptions

McKinsey & Company | 79

 Implementation of all programmes will have the largest impact in acute
and community services spend (1/2)
£bn. 2008/09. Mid point of maximum and minimum size of the opportunity.

• Doesn’t consider that

92.5 unit cost are now lower Considers that Reduction vs.
previous savings 2008/09 spend
Central 7.6 84.9 achieved Percent
13.1

Working Draft - Last Modified 18/03/2009 15:41:52

budgets
5.7 79,2
12.8 75.8 18%
Other & PCT 3.4
8.5
overheads 12.8
Mental Health 8.3 12.8 2%
9.6
and LD 8.3
8.8 8.3 4%
8.1
8.1 15%
Acute care 33.7
30.1

Printed 18/03/2009 15:36:55

26.5 31%
23.1

Community
8.4
care 7.0 6.4 6.4 23%

Primary care 19.2 17.6 17.0 17.0 11%

Current spend Drive Spent after Optimise Spend after Shift care to Spend after all
2008/09 productivity driving spend drive through lower cost 3 areas of
through all productivity productivity setting opportunity
providers through all and optimise
providers spend
1 Optimisation of spend allocate proportionally to current spend between primary, community, mental and acute care McKinsey & Company | 80
SOURCE: McKinsey analysis
Implementation of all programmes will have the largest impact in acute
and community services spend (2/2)
Percentage reduction vs. 2008/09 commissioning spend. Cumulative1
Cumulative savings vs. current spend 2008/09. Percent
Drive through Optimise Shift to lower
productivity spend cost settings

Working Draft - Last Modified 18/03/2009 15:41:52

Central budgets 1-2 1-2 1-2

Others and PCT overheads 3-5 3-5 3-5

Mental Health and LD 7-10 13-18 13-18

Printed 18/03/2009 15:36:55

Acute Care 8-13 17-26 25-38

Community care 13-20 19-28 19-28

Primary care 5-8 9-13 9-13

Total 6-10 12-17 15-22

! Range indicates the low and maximum potential identified McKinsey & Company | 81
SOURCE: McKinsey analysis
25% of the potential savings are driven by tariff or other national ESTIMATE
levers Programme number
£bn. 2013/14 recurrent potential savings. England
Non tariff
8
Tariff and other
national levers 0.8-1.6 13.4-19.9
7
1.9-2.5

Working Draft - Last Modified 18/03/2009 15:41:52

6

5 1.1-1.7

4 3.7-4.9

3 0.5-0.6

2 2.3-3.7
15
1 1.3-1.9 80

Printed 18/03/2009 15:36:55

1.9-3.0 25
20
60
Drive acute Driving non- Supply Estates Optimising Enforcing Enhancing Local Total
providers’ acute Chain/ optimisa- spend PCTs self care health potential
productivity providers’ procure- tion within care contracts/ and chronic economy
productivity ment pathways standards diseases reconfigur-
mgment ations

McKinsey & Company | 82

In the best case, headcount will have to be maintained flat; if savings of
£20bn are required, headcount will need to be 10% lower ESTIMATE
Number of WTE ‘000. NHS England.

1.210
1.100 110 110 1.100

Working Draft - Last Modified 18/03/2009 15:41:52

110 990

Printed 18/03/2009 15:36:55

2008/09 NHS Growth in 2013/14 Productivity 2013/14 Additional 2013/14
number of WTEs 08/09 - NHS forecast gain to NHS forecast productivity to NHS forecast
WTEs 13/14 in line WTEs achieve WTEs achieve WTEs
with activity assuming £10bn savings assuming £20bn savings assuming
growth1 current savings of savings of
productivity £10bn £20bn
levels achieved achieved

SOURCE: The information centre for social and community care, NHS staff 1997–2007; McKinsey analysis McKinsey & Company | 83
Need to decide early on the mechanisms to minimize the “pain” to the
workforce
Description of current situation Potential actions in next 6 months

▪ Medical school places grew ~8% per year ▪ Consider a reduction of the
Align training between 2000 and 2005, above the expected training positions, starting next
positions with growth in activity of 5.5% academic year, to avoid further
reviewed funding oversupply in 5 years from now,

Working Draft - Last Modified 18/03/2009 15:41:52

given new scenario

▪ 30-40% of the GPs and 50% of community ▪ Design an attractive and cost
Introduce an early nurses are above 50 years old1 efficient early retirement
retirement ▪ Multiple companies and industries have used programme to be implemented
programme early retirement programmes to cope with in the next 2 years
recessions while ensuring “new blood/talent”
keeps coming into the system

▪ Some Royal Colleges are recommending ▪ Review current plans to

Printed 18/03/2009 15:36:55

Limit introduction of introduction of mandatory staffing ratios on safety introduce mandatory staffing
mandatory staffing grounds that will lead to increases in staff costs or investments in quality
ratios required above the activity growth e.g ratio of of care requiring an increase of
1/28 per midwife the staffing levels
▪ Certain service reviews are also recommending
more staff is required e.g. stroke, children

▪ Current average NHS leaving rate is 10.5% for ▪ Evaluate options and timing of
Introduce a staff medical staff and 10.1% for not medical staff introducing a staff hiring freeze
hiring freeze although it varies widely by skill e.g. nurses and in the next 2 years, even if
HCA 14% and 22% respectively, consultants funding available
7.2%

1 – King’s Fund – NHS workforce – 2005

McKinsey & Company | 84
SOURCE: Kings Fund – NHS Workforce 2005; Information Centre for Social and Community Care
Implementation costs are estimated at £1.2-1.8bn over 3 ESTIMATED

years, equivalent to ~9% of potential annual savings Cumulative imple-

£m mentation costs.
£m

570-895 1,220-1,790

Working Draft - Last Modified 18/03/2009 15:41:52

425-625 240-320 400-530

120-160

60-180 105-310 175-515

230-270

Printed 18/03/2009 15:36:55

Redundancy costs1 40-55
Double running costs2 10-25
165
165 495
CAPEX to upgrade facilities3
165
Implementation teams4, external
80-120 60-100 155-250
Support and training
15-30
Yr 1 Yr 2 Yr 3

1 Assumes 6-8 months wages as redundacy pay, 11% normal turnover, and 80% of turnover used to capture necessary redundancies
2 Assumes 10-20% costs doubled for 4-6 months, with 5% care shifted in 1st year, 40% shifted in second year and 100% in thrid year
3 See page 39
4 Includes the Central Productivity Unit (see page 96) and the PCTs and SHAs central teams as per
McKinsey & Company | 85
Note: Does not include IT spend
If £10bn were released in cash to close the potential funding gap, England
would be one of the most cost effective countries, starting from a low base
2006
Total healthcare spend as % of GDP age Life expectancy at birth
adjusted (male and female)
2006. Percentage 2006. Years

80

Working Draft - Last Modified 18/03/2009 15:41:52

Singapore 4.2

Finland 7.5 79

Italy 8.4 81

UK 2006* 8.4* 79*

Sweden 8.5 80

Printed 18/03/2009 15:36:55

Spain 8.5 81

Norway 8.7 81

Netherlands 9.6 80

France 10.8 81

UK- if £10bn. in efficiencies

released in cash 7.5%
* Healthcare spend as % of GDP age adjusted is for UK, Life expectancy is for England
Note: Calculations based on 2006 to ensure comparability with other countries.
McKinsey & Company | 86
Source: WHO Statistical Information System, United Nations Statistics Division
Contents

▪ The challenge and size of the opportunity

▪ Detailing the opportunities

Working Draft - Last Modified 18/03/2009 15:41:52

▪ Implications

▪ Making it happen
– Mechanisms to capture value and enablers
– Overall programme architecture

Printed 18/03/2009 15:36:55

▪ Backup: Methodology and assumptions

McKinsey & Company | 87

 8 of the 16 programmes would focus on mechanisms and enablers
necessary to capture the identified opportunities
9
Applicable to capture the
value

Drive through costs efficiencies in all provider Optimize spend and ensure Shift care into more costs
services compliance with standards effective setting

1 2 3 4 5 6 7 8
Drive acute Drive non - Supply Estates Optimising Enforcing Enhancing Local health
provider acute chain optimisation spend PCT self care economy
productivity provider within care contracts/ and chronic reconfigura-

Working Draft - Last Modified 18/03/2009 15:41:52

productivity pathways standards disease tions
mgment.
Market structure/
management
9
9 9 9 9 9 9
Mechanisms to capture

Tariff and
reimbursements
10
9 9 9 9 9 9 9 9
9 9 9 9 9 9 9
GPs/Consultants 11
contracts

Personal budgets and12

9 9 9 9 9

Printed 18/03/2009 15:36:55

financial incentives

Commissioning tools13
& enforcing contracts 9 9 9 9 9 9 9 9
Workforce
14
9 9 9 9 9 9 9
Barriers/
enablers

IT
15
9 9 9 9 9 9 9
Capabilities
16
9 9 9 9 9 9 9 9
McKinsey & Company | 88
Contents

▪ The challenge and size of the opportunity

▪ Detailing the opportunities

Working Draft - Last Modified 18/03/2009 15:41:52

▪ Implications

▪ Making it happen
– Mechanisms to capture value and enablers
– Overall programme architecture

Printed 18/03/2009 15:36:55

▪ Backup: Methodology and assumptions

McKinsey & Company | 89

Key questions when designing the overall programme

▪ Which will be the key messages of the case for change?

Case for change – Why do we need this programme?
– How much is needed and by when? Impact on quality?
– What will happen if we don’t deliver?
▪ How and when this case for change will be communicated?

Working Draft - Last Modified 18/03/2009 15:41:52

ƒ Which process will be used to develop implementation plans at
Plan delivery SHAs, PCT and provider level?
ƒ How will targets be cascaded down to the system?
ƒ How existing programmes e.g. WCC, PCT performance regime will
be used to support the delivery of the programme?

▪ Which barriers to change need to be removed e.g., workforce

Printed 18/03/2009 15:36:55

Facilitate change mobility, incentives for M&A
▪ Which success examples of improved efficiency without
compromising quality could be shared?

Support
▪ Which tools/methodologies can the Productivity Unit and/or the
SHAs develop to support development of capabilities and skills
development of
skills/capabilities e.g. productive ward, utilisation reviewing, market management?
▪ What would be the resources required to provide this support?
▪ Which pilots could be used to test tools/methodologies and show
early success to build momentum?
McKinsey & Company | 90
 NOT EXHAUSTIVE
Actions and enabler to put in place at each level to capture the
identified opportunities
Key actions to capture opportunities Key enablers to put in place

ƒ Set tariffs ƒ Design programme structure/ governance and

ƒ Negotiate/define central contracts track progress
ƒ Set overall funding levels ƒ Develop a compelling story for change and level
of ambition

Working Draft - Last Modified 18/03/2009 15:41:52

National
level ƒ Remove key barriers to change
ƒ Embed within existing mechanisms e.g., WCC

ƒ Support and lead creation of ƒ Support efforts that required specialized skills/
potential “hubs” capabilities e.g. market management
ƒ Implement reconfiguration ƒ Support reviews to assess potential for
SHAs
processes improvement
ƒ Remove key barriers to change e.g. resistance
to reconfigurations

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ƒ Drive providers' performance ƒ Build world class commissioning capabilities
through contracts ƒ Set up appropriate incentives for providers
ƒ Reallocate spend to most cost ƒ Build skills and capabilities e.g., contracting/
PCTs effective interventions utilisation reviews
ƒ Realize potential savings through
reduction of staff or non pay spend
(e.g. estates)

ƒ Realize savings through: ƒ Build skills and capabilities e.g., lean operations
– Providing more care with same
Providers level of staff/resources
– Reducing staff and other
spending (particularly estates)

McKinsey & Company | 91

 We envision a central programme for which delivery will be
driven through the SHAs
Key roles
▪ Develop a compelling case for change
and set targets
Steering Committee
▪ Design the programme structure/ Central
Productivity Unit World Class
governance and track performance
Productivity (DH, SHAs
▪ Remove barriers to change and share

Working Draft - Last Modified 18/03/2009 15:41:52

and Productivity Unit
best practices/success stories
▪ Develop policies/methodologies for
allocative efficiency

Strategic Health
Authorities (SHA) ...

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Local implemen- Key roles
tation teams for Team Acute Team Acute ▪ Drive through local delivery of the
each programme productivity productivity programme
programme programme ▪ Set targets at PCT/provider level
▪ Design local programme structure/
Key roles governance and allocate resources
▪ Deliver identified productivity ▪ Lead delivery of SHA-wide opportunities
improvement opportunities e.g., service reconfigurations, “hubs”
▪ Take out costs maintaining or
increasing quality of care

McKinsey & Company | 92

Potential key activities of the programme in the first 12 months
04/’09 Release of NHS 04/’10
Objectives Operating plan

▪ Create compelling story Develop arguments: Develop communi-

Execute
Case for
change

and set targets quality, productivity cation plan

Agree size of gap and
Track performance (FPO)
cascade targets
Pilot SHA to develop
▪ Develop delivery plans SHA cascades IBP

Working Draft - Last Modified 18/03/2009 15:41:52

an integrated
programmes

for the different to PCT/provider level

business plan (IBP)
programmes at SHA,
Plan

PCT and provider level SHA IBP All SHAs cascade IBPs
All SHAs develop
IBPs to PCTs/providers

Identify areas with upfront investment to save later

▪ Eliminate current Prioritise barriers by

Remove
barriers

barriers to change, e.g., Develop and agree action Execute action plans and track
value and ease to
mandatory workforce plans performance
remove
ratio, incentives to M&A

Printed 18/03/2009 15:36:55

▪ Provide support to SHAs
Agree
Prioritise support
National

– Methodologies/ tools
support

based on value to areas of Develop and agree Execute action plans and track
e.g. productive ward,
SHAs and cost to support action plans performance
allocative efficiency
implement with SHAs
– Skills: PFI reneg.

▪
initiatives

Execute on the national

National

Prioritise levers
levers to capture some Develop and agree action Execute actions plans and track
based on value and
opportunities, e.g., PPRS, plans performance
ease of capture
tariff, PASA, clawback

▪ Prove concept and SHAs pilots x2

Pilots

disseminate best
practices Individual programme pilots x16

McKinsey & Company | 93

Examples of barriers to change to be removed

• Facilitate workforce mobility (e.g. geographic, setting )

Workforce • Align workforce plans/forecasts with new context
• Relax national central negotiation and planning

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• Focus consultation on services not on buildings
Reconfiguration • Simplify consultation process
processes • Support SHAs/ PCTs to manage resistance to
Productivity
reconfiguration
Unit should
• Need for a clear “failure regime” for providers who are prioritise the
Performance consistently failing clinically and/or financially barriers to
management • Relax “excessive” focus on some targets e.g. waiting times tackle first

Printed 18/03/2009 15:36:55

and develop
action plans
• Limit or remove mandatory staffing ratios e.g. 1:28 midwife
Mandatory staffing ratio, when some centres achieve 1:40 and high
initiatives quality
• Mandatory GP led centres without ensuring full utilisation
• Mandatory single tariffs across settings

• Clarify how the competition framework regime would work

M&A/
• Set up the “right” incentives for M&A/consolidations e.g. FTs
consolidation

McKinsey & Company | 94

Examples of tools/methodologies that could be developed Top quartile
51-75th percentile
nationally or at SHA to support the delivery 26-50th percentile
Acute setting dashboard: Version 1 - Can do now with nationally available data Bottom quartile

A&E Ward Theatre Outpatient Diagnostics Overhead

Working Draft - Last Modified 18/03/2009 15:41:52

Overall ▪ FCEs/surgeon (TBD ▪ Outpatient
appointments/Clinic
productivity ?)
al WTE (TBD ?)

External ▪ DOSA, %
systems
▪ Medical
Productivity

secretaries
▪ Weighted LOS /
▪ % bed days >14
▪ DNA and
▪ DNA, cancellations consultant
Patient ▪ % seen within 4 hours ▪ % HRG beyond trim
cancellations
▪ New to follow-up ratio
▪ Clinical
Flow point
coordinato

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▪ Bed utilisation (%)
▪ DNA and cancellation rs/ 1,000
Ops
▪ Finance
staff/ total
Staff staff
▪ HR
▪ Staff satisfaction Turnover Agency + Bank costs(%) Nurse grade mix staff/total
▪ Trainee WTEs/Consultant WTEs
staff
▪ 28 day re admissions rate Safety and error rate Mortality (index v 100) SMR
▪ IT
Quality staff/total
▪ MRSA Infection rate Patient satisfaction/complaints C. Diff Infection rate staff
Other KPIs

▪ 18 weeks
Access ▪ 2 weeks cancer target

▪ Income or EBITDA/WTE R&D income/total income

Finance £ ▪ ROCE MPET income/total income

McKinsey & Company | 95

SOURCE: Team analysis
Productivity Unit potential team and how it could evolve over time

First 1-3 months Beyond 4 months

Central Productivity Central Productivity

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Unit Team Unit Team

National National
Key roles Finance& Knowledge
Programme support
Finance Planning Performance programmes initiatives
design sharing

▪ Size funding ▪ Define content ▪ Complete ▪ Track ▪ Led ▪ Led ▪ Spread

gap under of the IBP analytics and performance implementa implemen best
different ▪ Review and problem solve against targets tion e.g. tation e.g. practices

Printed 18/03/2009 15:36:55

scenarios challenge the – Prioritise ▪ Review targets allocative Supply and key
▪ Set & cascade SHAs IBP national ▪ Identify efficiency Chain lessons
targets barriers, financial risks
▪ Review SHAs support and
level of initiatives
ambition – Develop
actions plans
▪ Overall
programme
Resources 8-10 WTEs ▪ 3-4 WTEs 12-16 sub-teams ▪ 1-2 WTEs
with 2-3 WTEs
8-10 WTEs 30-45 WTEs

McKinsey & Company | 96

Each SHA will design its programme delivery structure/governance
considering the local opportunities and skills/resources available
NON EXHAUSTIVE

Potential spectrum of options for SHA programme delivery structure

Potential options SHA-level dedicated team Individual PCT or provider

Embedded in current
with or without external dedicated team with or

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targets/responsibilities
support without external support
When most
appropriate?
▪ Type of ▪ Economies of scale – not ▪ Opportunity is PCT and ▪ Opportunity is part of the
opportunity economical to replicate for provider specific i.e. design business as usual of the
individual PCTs or implementation is local PCT/provider
▪ Implementation requires ▪ Somehow new or not
cross-PCTs or cross- typically part of the business
providers collaboration as usual

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▪ Skills/ ▪ Opportunity requires building ▪ Capturing opportunity requires ▪ Capturing opportunities
experience new or specialised skills skills that should be core to requires skills that are within
▪ Economies of scale PCTs/providers competencies current job description
but skills/experience
– Have not been built
before/ are new
– Not successful before

▪ Examples ▪ Collaborative ‘hubs’ ▪ Reducing variability in referrals ▪ Conduct utilisation reviews

▪ Service reconfigurations or prescribing practice ▪ Optimising theatre utilisation
▪ PFI renegotiation ▪ Estates optimisation

McKinsey & Company | 97

How the governance of the programme between the Central
Productivity Unit and the SHA could work
Productivity unit key
roles Potential governance

▪ Productivity unit sets overall level of ambition by SHA and set

Set targets financial envelop
▪ Each SHA develops a business plan detailing opportunities,

Working Draft - Last Modified 18/03/2009 15:41:52

expected size of the opportunity and required resources
Central Productivity ▪ Productivity unit and SHAs discuss and agree final targets
Unit and resources

▪ Quarterly Steering Committee to discuss performance/progress

Monitor/track – 2-3 representatives of DH Board
Governance of DH/ SHA performance – 2-3 representatives of the SHA board
relationship for NHS – 1-2 representatives of the Central and SHA Productivity Units
World Class Productivity ▪ Identify jointly root causes of under- delivery and jointly agree
programme? corrective actions plans and support from Productivity Unitl

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▪ Led by Productivity Unit team who will engage SHAs ad
Develop policies/ hoc to:
methodologies – Prioritise areas to develop/address first
– Input on drafts of policies/methodologies
SHAs
SHAs
SHAs
▪ Led by the Productivity Unit who will engage SHAs ad hoc to
Remove barriers/ – Prioritise barriers to remove first/ enablers to put in place
enable change – Discuss most appropriate actions to remove barriers

McKinsey & Company | 98

Pilots in SHAs could be targeted to demonstrate early successes
LONDON SHA EXAMPLE
Potential pilots for London SHA
▪ Accelerating implementation of HfL
SHA level ▪ London collaborative hub – targeted service lines
– Claims management and coding review

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– Provider intelligence, contracting negotiation and commercial advice
▪ Estates optimisation
▪ Local health economy reconfiguration in the North East

Provider ▪ Acute providers: Imperial College productivity programme

level – Theatre utilisation
– Bed management

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– Pathology (use and delivery model)
– Service reconfiguration
▪ GPs productivity: Tower Hamlets PCT
– Increasing GP patient facing time
– Increase slots/appointments
ƒ Polyclinic development in Redbridge
PCT level ƒ Reduce variability in prescribing practices (target PCTs to be identified)

McKinsey & Company | 99

What does this mean for an average PCT?

Activities ▪ Review of PCT strategy to identify and incorporate opportunities for

productivity improvements whilst still maintaining strategic direction
▪ Renegotiation of GP and provider arm contracts to drive down unit
costs of non-tariff providers
▪ Support providers in restructuring in response to tariff reduction

Working Draft - Last Modified 18/03/2009 15:41:52

▪ Active performance and contract management to ensure productivity
and quality targets are being met
▪ Evaluation of all clinical pathways to identify non-effective
interventions, and replace in favour of high-impact interventions
▪ Comprehensive redesign of care pathways to shift activity to out-of-
hospital settings

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People ▪ New team created within existing staff with sole focus on
implementing productivity improvements

Skills ▪ Specific training to improve commissioning and negotiating skills

▪ Information and data analysis augmented by upgraded management
information systems

McKinsey & Company | 100

What does this mean for an average Provider?

Activities ▪ Review of patient contact time and processes involved in ward rounds
and clinics
▪ Recalculation of staffing rotas

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People ▪ Focussed communication and training to underline need for and goals
of productivity improvement and implied impact on status quo
▪ Reduction in headcount equivalent to 35 FTEs from a clinical staff of
3001:
– 2 Consultants
– 1 Registrar
– 10 Nurses
– 10 Healthcare Assistants

Printed 18/03/2009 15:36:55

– 3 Allied Health Professionals
– 8 Non-clinical staff

Skills ▪ Specific training on change management skills

▪ Review of costs and rationalisation of all services to meet new tariffs
▪ Information and data analysis augmented by upgraded management
information systems
1 Based on reduction in headcount proportional to estimated potential for productivity improvement (see methodology) against current staffing ratios from
NHS Information Centre Staff Numbers Mar 2008

McKinsey & Company | 101

 ILLUSTRATIVE
For each of the 16 identified programmes and geographies,
External support
need and type of external support would have to be defined Required
Not required
SHA 10
SHA 2
Make goals Identify Draw up Put re-
plausible/ sources/ Implement Capture
SHA 1 identify specific approaches/ actions/ enablers in action plan potential
opportunities develop tools measures place

1 Improve acute providers’

Working Draft - Last Modified 18/03/2009 15:41:52

productivity
2 Improve non-acute
providers’ productivity
3 Supply chain

Areas of 4 Estates optimisation

oppor- 5 Optimising spend within
tunity the care pathways
6 Enforcing PCTs contracts/
standards
7 Enhancing self-care and chronic
disease management

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8 LHE* reconfigurations

9 Market structure/
management
10 Tariffs and reimbursements
11 GP/ Consultant contracts

12 Personal budgets and

Mech-
financial incentives
anisms/
enablers 13 Commissioning tools and
enforcing standards
14 Workforce

15 IT

16 Skills/capabilities building

McKinsey & Company | 102

There are different options for the procurement strategy of this external
support
Tender support for all programmes Tender support by SHA

▪ Potential to
SHA 1 SHA 2 ... SHA 10 SHA ‘A’ SHA ‘B’ ... SHA 10 tender support
to design
Programme 1 Programme 1
overall

Working Draft - Last Modified 18/03/2009 15:41:52

Programme 2 Programme 2 programme
. . Provider Provider Provider
. . /consor- /consor- /consor- ▪ Decide the
A single provider/consortium tium 1 tium 2 tium 10 type of skills
. .
required (e.g.,
Programme 15 Programme 15 management
consultants to
review strategy
and identify
Tender support by programme /group Tender support by programme and SHA opportunities,

Printed 18/03/2009 15:36:55

of programmes or a combination implementa-
tion specialists
SHA 1 SHA 2 . . . SHA 10 SHA ‘A’ SHA ‘B’ . . . SHA ‘N’ to drive shop-
floor change,
Programme 1 Provider/consortium 1 Programme 1 Provider 1 Provider 2 Provider 3 IT consultants
Programme 2 Provider/consortium 2 Programme 2 Provider 4 Provider 5 Provider 6 to deliver
. enabling IT
. architectures,
.
.. . health insurers
.. . with payment
. and contracting
Programme 15 Provider/consortium ‘n’ .
Programme 15 Provider 7 Provider 8 Provider 10 expertise)
.

McKinsey & Company | 103

Contents

▪ The challenge and size of the opportunity

▪ Detailing the opportunities

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▪ Implications

▪ Making it happen

▪ Examples of successful implementation

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▪ Backup:
– Methodology and assumptions
– NHS spend breakdown and forecast assumptions

McKinsey & Company | 104

 1 Methodology and assumptions – Drive-through cost ESTIMATE

efficiencies in all providers’ services (1/2) Implied

Potential size of productivity/
Methodology/assumption opportunity, £b savings, %
1a
▪ Clinical staff 1.5 – 2.4 9 – 14
Acute staff – All acute trusts below the median of FCEs by doctor, nurse and other clinical staff achieve
productivity 50%-80% of the potential productivity improvement of stepping up to the median
– Clinical costs account for 50% of acute costs
▪ Non-clinical staff 0.4 – 0.6 7 – 11

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– All acute Trusts above the median of non-clinical staff to clinical staff ratio achieve 50%-80%
of the potential productivity improvement of stepping down to the median
– Average total earnings of non-clinical staff of 20,000/year
1b
▪ Community services 0.7 – 0.9 11 – 15
Non-acute staff – Estimate potential productivity improvement by reducing variability in distinct nurses daily visits.
productivity Assumes underperformers achieve the median or 10% above the median (based on one PCT)
– Typical potential savings identified in the provisioning of community services in different PCTs
▪ Mental health providers 0.5 – 0.6 10 – 12
– All trusts above the median ALOS achieve 50%-80% of the potential improvement of stepping
down to the median ALOS
– Reduction of beddays if crisis resolution teams’ effectiveness increase by 10% (TBC)

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▪ Primary care providers 0.2 – 0.4 5– 9
– 5–10% pf the GPs are very weak performers and 15–25% are weak performers in the number
of appointments offered per week
– Weak and very weak GP performers achieve the standard performance
– GPs staff costs account for 60% of the total GP practice costs
1c
▪ Reduce brand drugs price 0.45 5
Reduce drug – Agreed Pharmaceutical Price Regulatory Scheme 2009 (PPRS) includes an overall price
expenditure reduction of 5.3% for the next 5 years
– No additional price reduction beyond the 2009 PPRS agreement as UK BX prices would be in
line with EU countries with the exception of Spain and Italy (10% higher after PPP1)

▪ Reduce variation in prescribing practices 0.36 – 0.60 5–8

– PCTs can reduce variability in current prescribing costs per age need weighted population
– Specifically, assume that PCTs can achieve the median spend or 80% of the bottom quartile

McKinsey & Company | 105

1 Purchase Power Parity
 1 Methodology and assumptions – Drive-through cost ESTIMATE

efficiencies in all providers’ services (2/2) Implied

Potential size of productivity/
Methodology/assumption opportunity, £b savings, %
1c
Reduce drug ▪ Increase generics penetration 0.17 – 0.29 1.5 – 2.5
expenditure – Generics penetration in value grows from 29% in 2007 to 32-33% in 2013 based on the
(continued) assumption that penetration continues growing at a pace that is 50-80% that of the last 3 years
– Gx prices are on average 80% lower than the originators’ 3 years after their introduction

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▪ Increase clawback to pharmacies 0.06 – 0.16 7 – 18
– Clawback is increased from current 9.3% (c £900m) to 10-11% (typical discounts received
currently by pharmacies are c. 10.5% for branded and higher for generics)
▪ Build scale in procurement of hospital drugs 0.08 – 0.11 3 – 4.5
– Top 50 Bx drugs: current discounts of 12.3% could be increased by 50–80%
– Rest of Bx: current discounts of 9.3% could be increased by 30–40%
– Generics: limited scope for increase in discounts as already part of PASA managed contracts
▪ Outsource hospital drug supply chain 0.04 – 0.10 1.5 – 4
– 3 – 5% savings based on the DHL 10-years outsourcing contract which targets 4.5% savings
– 50 - 80% of the hospital drug spend is outsourced
▪ Reduced wholesalers’ revenues 0.06 – 0.11 8 – 14

Printed 18/03/2009 15:36:55

– Current wholesalers’ revenues average 8.5% of Bx ex-manufacture price and 10.5% for Gx
– UK wholesalers’ revenues are reduced to become closer to Spain (7.6%) and Italy (7.1%)
wholesalers’ revenues
1d
▪ Clinical and non clinical supplies, capital expenditure and central budgets 1.1 – 1.9 6 – 11
Supply chain – 7-12% cost savings for purchases not under PASA managed contracts
optimisation – 3-5% costs savings for purchases under PASA managed contracts
– 10-15% cost savings of GP supplies purchases; GPs supplies costs account for 10% of the
total GP practice costs
1e
Estates ▪ 10–15% potential reduction on estates costs 0.5 – 0.8 10 – 15
optimisation ▪ Estates costs include amortisation, depreciation, capital charges and premises costs but exclude
impairments and loss/gain from sale of assets
1f
Restructuring ▪ On 80% of the PFI schemes, government can renegotiate interest rates down by 2–3 b.p. 0.1 – 0.2 11 – 17
PFI ▪ PFIs holders need the cash and cannot renegotiate in same conditions as government

McKinsey & Company | 106

1 Purchase Power Parity
 1 Sources– Drive-through cost efficiencies in all
providers' services (1/4)
Metric used in calculations Data used Source Year
1a
▪ N. of doctors by acute provider (FTEs) ▪ 78k
Acute staff
productivity ▪ N. of nurses by acute provider (FTEs) ▪ ~15k
▪ N. of other clinical staff by acute provider FTEs) ▪ 80k
▪ The Information Center for Health
and Social Care 2007 – Workforce census ▪ Sept 2007
▪ N. of other non-clinical staff by acute prov. (FTEs) ▪ 280k
▪ Total staff by acute provider (FTEs) ▪ 375k
▪ ▪ ▪ ▪

Working Draft - Last Modified 18/03/2009 15:41:52

Total number of FCEs by acute provider 14 million HES online 2007/08
▪ % of clinical staff costs over total acute costs ▪ 50% ▪ Stephen Dorgan memo ▪ N.a.
▪ Average total earnings of non-clinical staff ▪ 20,000 p.a. ▪ Information Center for Health and Social Care ▪ 2008
2008 – NHS staff median total earnings/FTE
▪ Total acute commissioning costs ▪ £ 33 billion ▪ National Audit Office Summarized Accounts ▪ 2007/08
– Care purchased by PCTs
1b Community care services
Non-acute staff ▪ Community services and others costs ▪ £ 8.4 billion ▪ National Audit Office Summarized Accounts ▪ 2007/08
productivity – Care purchased by PCTs
▪ % of staff costs over total costs ▪ 75% ▪ Assumption based on one PCT Provider Arm ▪ 2007/08

Printed 18/03/2009 15:36:55

▪ % of potential staff productivity improvement ▪ 11–15% ▪ Assumption – reduction of variability in DN ▪ N.a.
productivity; experience in community services
Primary care services
▪ GMS, PMS, AMPS and PCTMS contract costs ▪ £ 7.2 billion ▪ National Audit Office Summarized Accounts ▪ 2007/08
– Care purchased by PCTs
▪ % of GPs staff costs over total costs ▪ 60% ▪ Polyclinic model; the Information Center for ▪ 2007
Health and Social Care 2008; workforce census
▪ Sessions per week per GP WTE ▪ 7 ▪ Typical practice ▪ N.a.

▪ GP appointments per sessions per GP ▪ 11–18 ▪ Data extracts from GP systems – one PCT ▪ 2008
▪ Average GP salary ▪ £ 108,000 ▪ The Information Center for Health and Social ▪ 2006/07
Care 2007– GPs earnings and expenses enquiry
▪ Tariff inflation 2.5% (07/08) and 2.3% (08/09)
▪ Number of GPs in England ▪ 31,000 ▪ The Information Center for Health and Social ▪ Sept 2007
Care 2007 - Workforce census

McKinsey & Company | 107

1 Weighted average of the growth in spend of branded drugs (6% p.a.) and generics (12% p.a.)
 1 Sources– Drive-through cost efficiencies in all
providers' services (2/4)
Metric used in calculations Data used Source Year
1c Reduce brand drug price
Reduce drug ▪ Total expenditure in branded medicines ▪ £7.1bn. ▪ Office of Fair Trade – Annexe D: Financial ▪ 2005
expenditure Flows relevant to medicines Dec. 2007
▪ % annual growth in Bx spend 2005-07 ▪ 6% p.a. ▪ Office of Fair Trade: PPRS – An OFT study ▪ 2005-07
▪ Bx price reduction in PPRS for next 5 years ▪ 5.3% ▪ DH - PPRS 2009 ▪ Dec.’08
Reduce variation in prescribing practices

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▪ Total prescribing costs by PCT ▪ £7.5bn. ▪ Laing & Buisson NHS Financial Report ▪ 2007/08
▪ Age need weighted population by PCT ▪ 50.5m. ▪ DH Exposition book ▪ 2006/07
Increase generics penetration
▪ Total spend in generics ▪ £2.4bn ▪ Office of Fair Trade – Annexe D: Financial ▪ 2005
Flows relevant to medicines Dec. 2007
▪ % annual growth in Gx spend 2005-07 ▪ 12% p.a. ▪ Office of Fair Trade: PPRS – An OFT study ▪ 2005-07
▪ Historical growth in generics penetration in value ▪ 3.4% p.a. ▪ Espicom ▪ 2004-07
▪ Price gap between originator and Gx product ▪ 80% ▪ Euro Observer 2008 based on 12 molecules ▪ 2008
Increase clawback to pharmacies
▪ Current clawback to pharmacies ▪ 9.3% ▪ Office of Fair Trade – Annexe D: Financial ▪

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2005
▪ Total spend on medicines in primary care ▪ £7.5bn. Flows relevant to medicines Dec. 2007
▪ Growth on spend on medicines in primary care ▪ 8% p.a.1 ▪ Office of Fair Trade: PPRS – An OFT study ▪ 2005-07
Build scale in procurement of hospital drugs
▪ Current hospital discounts on top 50 Bx drugs ▪ 12.3%
▪ Current hospital discounts on rest of Bx drugs ▪ 9.3% ▪ Office of Fair Trade: PPRS – An OFT study ▪ 2008
▪ Total spend in Bx medicines in secondary care ▪ 2.5bn
Outsource hospital drug supply chain
▪ DHL outsourcing contract expected savings ▪ 4.5% p.a. ▪ DHL website – Presss release 2006 ▪ 2006
Reduce wholesalers’ revenues
▪ Current wholesalers' revenues as % of price: Bx ▪ 8.5% ▪ Mckinsey pharmaceutical practice
▪ Current wholesalers' revenues as % of price: Gx ▪ 10.5%
▪ Wholesalers' revenues as % of price in Spain ▪ 7.6% ▪ Regulated margins from manufacturers ▪ 2008
▪ Wholesalers' revenues as % of price in Italy ▪ 7.1% ▪ Regulated margins from manufacturers ▪ 2008

McKinsey & Company | 108

 1 Sources – Drive-through cost efficiencies in all
providers' services (3/4)
Metric used in calculations Data used Source Year
1d PCTs – NHS Trusts - OPEX
Supply chain ▪ Clinical and non clinical supplies1 – FTs ▪ £2.1bn
optimisation
▪ Clinical and non clinical supplies1 – NHS Trusts ▪ £4.4bn ▪ National Audit Office Summarized Accounts ▪ 2007/08
▪ Clinical and non clinical supplies1 – PCTs ▪ £1.7bn
▪ PASA total value of contracts managed ▪ £4.6bn ▪ NHS Purchasing and Supply Agency – ▪ 2007/08

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Annual report and Accounts 2006/07
▪ % of PASA managed contracts related to drugs ▪ 40% ▪ Assumption ▪ N.a.

▪ % of potential costs savings for PASA managed contracts ▪ 3-5% ▪ Assumption - 10% savings already captured ▪ N.a.

▪ % potential costs savings for non PASA managed contracts ▪ 7-12% ▪ Assumption ▪ N.a.
Primary care - OPEX
▪ GMS, PMS, AMPS and PCTMS contract costs ▪ £ 7.2bn ▪ National Audit Office Summarized ▪ 2007/08
Accounts – Care purchased by PCTs
▪ % of supplies costs as % of total GPs contract costs ▪ 10% ▪ Assumptions – based on typical GP practice ▪ N.a.

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CAPEX
▪ Capital investment ▪ £4.9bn ▪ DH – Departmental report 2008 ▪ 2008/09
▪ Central budgets – non pay2 ▪ £3.4bn ▪ DH – Departmental report 2008, assumptions ▪ 2008/09
▪ % of potential costs savings on CAPEX procurement ▪ 10-15% ▪ Assumption based on previous experiences ▪ N.a.

1e ▪ Estates costs – PCTs ▪ £0.5bn

Estates ▪ ▪
▪ Estates costs – Trusts ▪ £0.6bn NHS Information Centre – Estates Returns 2007/08
optimisation Information Collection 2007/08
▪ Estates costs – Mental health and community services3 ▪ £2.3bn
▪ Space utilisation – PCT sq.m./WTE ▪ 17.1 ▪ National Audit Office – Improving the efficiency ▪ 2007
of central government’s office property
▪ Space utilisation – Providers sq.m./bed ▪ 61.4 ▪ NHS Information Centre – Estates Returns ▪ 2007/08
Information Collection 2007/08 – top quartile
▪ Total risk-adjusted backlog ▪ Var. ▪ NHS Information Centre – Estates Returns ▪ 2007/08
Information Collection 2007/08
1 Includes supplies and services (general and clinical), consultancy services, auditors fees and other
2 Includes training, R&D, ALB, Contingency, Ophthalmology, DH admi., Welfare Foods and others. Excludes NHS Litigations, CfH, EEA Medical McKinsey & Company | 109
Costs, Pharmacy, Vaccines and Pandemic Flu
 1 Sources – Drive-through cost efficiencies in all
providers' services (4/4)
Metric used in calculations Data used Source Year

1f ▪ Average 2009-2013 annual unitary payments for PFIs ▪ £1.2bn ▪ Treasury – Signed PFI schemes ▪ Nov’08
Restructuring
PFI ▪ Potential reduction in interest rates ▪ 2-3 b.p. ▪ Assumption – based on interest rates trend ▪ N.a.
▪ % of PFI schemes renegotiated ▪ 80% ▪ Assumption ▪ N.a.

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1 Includes supplies and services (general and clinical), consultancy services, auditors fees and other
2 Includes training, R&D, ALB, Contingency, Ophthalmology, DH admi., Welfare Foods and others. Excludes NHS Litigations, CfH, EEA Medical McKinsey & Company | 110
Costs, Pharmacy, Vaccines and Pandemic Flu
 ESTIMATE
2 Methodology and assumptions – Optimise spend and ensure
compliance with commissioners’ standards Implied
Potential size of productivity/
Methodology/assumption opportunity, £b savings, %
2a
Stop/reduce ▪ EL procedures 0.3–0.7 3–7
procedures with – Use London Healthcare Observatory (LHO) and the Chief Medical Officer report 2007
no/limited to identify the HRGs&OPCS with no/limited clinical benefit
clinical benefit – Apply the LHO percentages of potential minimum and maximum reduction for those
HRGs/OPCS to England overall activity and costs, assuming that only 80% of the

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maximum potential could be achieved
▪ New OP attendances 0.2–0.4 14–22
– PCT estimated savings of 14–22% of new OP attendances through reducing the variability
in GP referrals for new OP (SAR1) – assumed underperformers GPs achieve the median
or 80% of the potential improvement of stepping down to bottom quartile
– Apply the 14–22% identified opportunity to England total spend in new OP attendances
▪ OP follow-up attendances 0.2–0.3 9–13
– Underperforming acute hospitals achieve the median FU/new OP ratio or 80% of the
potential improvement of stepping down to the bottom quartile ratio

▪ Diagnostics 0.1–0.2 10–16

– 10–16% potential reduction in direct access diagnostics (DAD)

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– £~10m spend in DAD per PCT (???)

2b ▪ 10–12% of PCTs commissioning spend can be optimised by reallocating to interventions 2.8–3.3 7–9
Target most that are 3 times more cost-effective
costs effective ▪ PCT spend impacted £c38m. – includes spend in GPs, community services, acute care
interventions (except NEL and A&E) and mental health care

2c ▪ 2–3% potential savings on current PCT commissioning spend (c70b) based on experience 1.5–2.0 2–3
Conduct in Germany and US where savings of 3–5% have been achieved at the end of a 2-year
utilisation programme
reviews

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1 Adjusted standardized activity ratio
 2 Sources – Optimise spend and ensure compliance with
commissioners’ standards
Metric used in calculations Data used Source Year
2a EL procedures
Stop/reduce
procedures with ▪ Activity for each of the 34 HRG and ▪ 1.1m spells ▪ HES online ▪ 2006/07
no/limited clinical OPCS identified by LHO
benefit ▪ Commissioning costs for each of the 34 ▪ £2.1bn. ▪ HES online ▪ 2006/07
HRG and OPCS identified by LHO
▪ % of potential minimum and maximum ▪ Varies by HRG ▪ LHO – Save to invest: Developing ▪ 2007

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reduction through decommissioning of and OPCS criteria-based commissioning for planned
limited/no clinical benefit activity healthcare in London
New OP attendances
▪ Total commissioning spend in new OP ▪ £1.7bn ▪ HES online ▪ 2006/07
attendances ▪ DH payment by results tariff ▪ 2006/07
▪ Tariff uplift – DH ▪ 2007/08
Follow- up OP attendances
▪ Total follow-up OP attendances by ▪ 29m attendances ▪ HES online ▪ 2006/07
specialty and by acute trust
▪ Total new OP attendances by specially ▪ 13m attendances ▪ HES online ▪ 2006/07
and by acute trust

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▪ Follow-up OP average price ▪ £79/attendance ▪ National schedule of reference costs ▪ 2006/07
▪ Tariff uplift ▪ 2007/08
Diagnostics
▪ Diagnostics per weighted population ▪ Varies by ▪ Department of Health Diagnostic Waiting ▪ 07/08
2b diagnostic test List Returns; DH Exposition book

Target most cost- ▪ Total commissioning spend for which ▪ £38bn. ▪ National Audit Office NHS Summarised ▪ 2007/08
effective allocation could be optimised1 Accounts
interventions ▪ % of PCT spend that can be optimised ▪ 10–12% ▪ Assumption ▪ n/a
▪ Difference between procedures most cost ▪ 3 times ▪ Assumption based on CHD pathway ▪ 2008
effective and less cost effective analysis
2c
▪ Total PCT commissioning spend, ▪ £63b ▪ National Audit Office NHS Summarised ▪ 2007/08
Conduct utilisation excluding prescribing costs Accounts
reviews ▪ % potential reduction in spend ▪ 2–3% ▪ Assumption based on U.S. and Germany ▪ n/a
experiences (3–5%)
1 Includes spend on GPs, community services, acute care (except NEL and A&E) and mental health McKinsey & Company | 112
 ESTIMATE
2 Methodology and assumptions – Optimise spend and ensure
compliance with commissioners’ standards Potential size of Implied
opportunity productivity/
Methodology/assumption £bn savings, %
3a
Enhance self care ▪ Calculate current direct costs to the NHS of CVD, diabetes, cancer, 1.9 – 2..5 10 – 13%
and management asthma and COPD
of people with ▪ Assume current costs of LTCs are reduced by the achievement of
the productivity improvement opportunities identified in 1 and 2

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LTCs and complex
needs ▪ Use U.S. and German experience in savings achieved in LTCs using
more self care and disease management programmes (20%) as a
reference of potential in England
3b ▪ Unscheduled care
– Calculate current spend in A&E and Non Elective assuming that 0.3 – 0.5 20 – 32%
Shift care to lower productivity improvement identified in 1 and 2 have been achieved
care settings – A&E attendances – clinical evidence on % of minor, standard and
major attendances that can be provided in alternative settings indicates
potential savings of 20 – 40%.
– Avoided NEL admission avoided based on clinical evidence and 0.7 – 1.2 5 – 8%

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experience of some PCTs reconfiguring unscheduled care
– Cost of reprovision: – costs of reprovision typically equivalent to 35% ( 0.4 – 0.6)
n/a
of the potential savings based on bottom-up costing of the required
alternative services e.g. UCC, CAU
– Only 80% of the maximum potential is achieved
▪ OP, day care and diagnostics to polyclinics/ GP surgeries 0.2 – 0.6 2 – 7%
– Calculate current spend assuming that productivity improvements identified
in 1 and 2 have been achieved
– Clinical evidence on % of potential OP, day cases and simple diagnostics
that can be shifted to primary/community/home care settings
– Use-bottom-up costing of providing the care in primary/community/home
setting of a specific business case – conservative modelling
– Assume 80% of the maximum potential is achieved
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4 Methodology and assumptions – Prevent people from becoming ill
through increased prevention
Assumptions Source

• Based on 11m current smokers with an average cost to the ▪ www.ic.nhs.uk

Smoking NHS of £150 per smoker per year and a one-time off cost
per quitter of £173
• Assumes 30% reduction in number of smokers and
reduction of health burden by 50% per quitter

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• Benefit will accrue over many years but the calculation of
net benefit cost of intervention is assumed to be spread
over 5 years.

▪ Based on 2015 additional costs of obesity in case of ▪ 2007 Foresight Tackling Obesities: Future Choices
no additional intervention is taken Report
Obesity
▪ Assumes DH undertakes announced pledge to return
to 2000 levels of obesity by 2020 with an initial an
investment of c.£370m over 3 years.

▪ Currently the total cost to NHS of alcohol misuse is £2.7bn ▪ DH website

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▪ £1 invested in tackling alcohol misuse saves £1.30-£1.70 ▪ U.K. alcohol treatment Trial (BMJ)
Alcohol in health service cost
▪ Assumes £0.5bn investment in tackling alcohol misuse of

▪ Increasing vaccination rates within at-risk groups in ▪ Mullolly et al study (Kaiser Permanente Center for
the UK from current level of 45-75% (DH website) Health Research) which showed that for the elderly
Flu vaccination population overall the net saving per person were $1.10
assumed to be close to cost neutral

▪ Impact extrapolated from the US to UK assuming ▪ US Dept of Agriculture Food Assistance and Nutrition
– Both countries have similar starting positions Report no 13 founds that $3.6bn could be saved by
Breastfeeding increasing US breastfeeding
– Proportional to population sizes
▪ Assumes cost of implementation campaign to be
20%

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Assumptions used to estimate the percentage of savings by
national/central levers

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Part compliance part central policies,
e.g., allowing pharmacist to substitute

Assumes centrally providers force to

use PASA vs. today optional policy

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% of acute trust income based on tariff

Assumes centrally providers force to use PASA vs. today optional policy

Assumes productivity can be driven by GP contracts

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Contents

▪ The challenge and size of the opportunity

▪ Detailing the opportunities

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▪ Implications

▪ Making it happen

▪ Examples of successful implementation

▪ Backup

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– Methodology and assumptions
– NHS spend breakdown and forecast
assumptions

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NHS resources 2008–09
£bn

NHS revenue settlement Total NHS capital

92.5 4.9

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1.4
1.4

2.7 0.8
78.0

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13.1

Centrally PCT SHA Total NHS NHS trust PCT Central Total NHS
managed allocations* revenue and FT allocations budgets capital
budgets

* Includes initial loans limits (£74.2b), direct allocations (£1.7b) and density (£2.1b)
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Source: Department of Health – Departmental report 2008
Breakdown of the centrally managed budgets – Revenues 2008/09
£bn

13.1

3.1

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0.7
0.8
0.8
0.8
1.2
4.5 1.2

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Training NHS Con- R&D EEA ALB Phar-macy Others* Total NHS
litigation necting for medical revenue
authority health costs

* Includes contingency (£0.4b), ophthalmology (£0.4b), substance misuse (£0.4b), Vaccines (£0.3b), DH
administration (£0.3b), welfare foods (£0.2b), pandemic flu (£0.1b) and others (£1.1b)
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Source: Department of Health – Departmental report 2008
Breakdown of PCTs revenues allocations 2007/08
£bn

Total primary care – £19.1b Total secondary care – £51.6b

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75.9

9.1

7.2
2.4 0.4

30.2

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9.6

6.3
1.8
1.7 5.2 (TBC)
2.0

Total PCTs Prescribing GPs Dental Other General Mental Community Maternity A&E Other PCTs non
revenue and contract services primary and acute health and health care secondary commission
pharma- care secondary LD services care ed health
ceutical care care costs
services

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Source: National audit office, NHS summarized account 2007/08
Breakdown of the forecast increase in NHS spend ESTIMATE
£bn

8.5 1.2 116.0

13.9 0.7 0.5
5.3 3.2
92.4 7.0
6.9 50,5

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Non-pay 39,8

65,5
Pay 52,6

2008/09 Growth due Growth due Growth due 2013/14 NHS

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NHS spend to inflation to activity to mix impact spend
only only of inflation forecast at
and activity current level
of efficiencies

CAGR Pay 2.5% 2.0% – 9.5%

2009/10–
Non-Pay 3.3% 1.5% – 4.8%
2013/14
%
Total 2.8% 1.8% – 4.6%

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Key assumptions on activity, inflation and mix of pay and non-pay to
develop NHS spend forecast
Commissioning spend, PCTs budget 2008/09–(2013–14) forecast
Current spend % pay vs. % Inflation % activity
2007/08, £b total costs rate p.a. growth p.a.

▪ Acute services 33.7 65 2.5 1.9

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▪ GMS, PMS, APMS, and PCTMS 7.1 65 2.5 3.0
▪ Prescribing costs 7.6 0 5.5 0.5
▪ Mental illness 7.2 65 2.5 2.1
▪ Community services 6.3 65 2.5 3.0
▪ Contractor led GDS and PDS 2.3 65 2.5 3.0

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▪ Learning disabilities 2.4 60 2.5 2.1
▪ Pharmaceutical services 1.2 0 5.5 0.5
▪ A&E 1.7 65 2.5 1.9
▪ General Ophthalmology services 0.4 65 2.5 0.5
▪ New pharmacy contract 0.3 65 2.5 0.5
▪ Other 11.0 65 2.5 1.9

Total 79.4 58 2.9 2.0

SOURCE: National Audit Office of Annual Accounts; HES historical data 2003–07; McKinsey analysis McKinsey & Company | 121
Key assumptions on activity, inflation and mix of pay and non-pay to
develop NHS spend forecast (CONTINUED)
Central budgets 2008/09–(2013–14) forecast
Current spend % pay vs. % Inflation % activity
£b total costs rate p.a. growth p.a.

▪ Training 4.5 65 2.5 0.5

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▪ NHS litigations 1.2 25 2.5 0.5
▪ CfH 1.2 50 2.5 0.5
▪ R&D 0.8 65 2.5 0.5
▪ EEA medical costs 0.8 65 2.5 0.5
▪ ALB 0.8 80 2.5 0.5
▪ Pharmacy 0.7 0 5.5 0.5
▪ Contingency 0.4 0 2.5 0.5

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▪ Ophthalmology 0.4 65 2.5 0.5
▪ Substances misuse 0.4 50 2.5 0.5
▪ Vaccines 0.3 0 2.5 0.5
▪ DH Administration 0.3 75 2.5 0
▪ Welfare foods 0.2 0 2.5 0.5
▪ Pandemic flu 0.1 0 5.5 0.5
▪ Others 1.0 65 2.5 0.5
13.
Total 52 2.8 0.5
1
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