Money Lies at the Root of the Hospital Crisis

Jill Sherman and William Greaves asked Health hospital managers about the daily financial juggling act.

Barbara Young came into the world just three days after the birth of the National Health Service. Her mother, unaware of the social revolution which was to grace the last hours of her pregnancy, had already booked a bed in the fee-paying clinic. ‘So I suppose that makes me one of the last private babies to be born into the working classes,’ she says with an irrepressibly cheerful grin.

Both Young and the NHS are now approaching their 40th birthday, and today she is one of its 192 new-look district managers who were brought in five years ago to replace its old network of conscientious but committee-bound administrators. And, last summer, when she became the first woman president in the history of the Institute of Health Service Management, she didn’t need any extra-sensory perception to know that her near-twin was headed for a crisis.

It is merely the speed of the NHS’s decline into what many pessimists have already diagnosed as terminal sickness which has caught the Institute unawares.

‘We are making our own inquiry into what has happened and how it can best be put right,’ she says. ‘I announced it in June, we began it in September and we plan to come out with our recommendations in May. Now all hell’s let loose and I’m worried that ill-researched and ill-thought-through decisions will have been made in the meantime.’

But does the new breed of all-powerful district managers, over whose institute Young presides, have any right to be judge at its own inquest? Has it succeeded in replacing bureaucracy with boardroom efficiency, or have the sins of the old administration been visited upon its successors? Can business methods and commercial accountability ever share beds with the altruistic ideals of free health? In short, how effectively are the new NHS managers managing?

The right wing of the political spectrum believes them to be far too unenterprising and dependent on the government cheque book. Where, it demands, are the shopping precincts in hospital foyers and the sponsors with their names emblazoned over bandages and across surgeons’ chests? And the left wing, scarcely surprisingly, accuses them of vulgar commercialism in the way they are selling the democratic concept of the health service down the river.

‘So long as we are annoying them both equally I am pretty sure we’re on the right lines. With so much contentious nonsense flying around, we must be the small, still voice of reason,’ says Miss Young, who combines the Institute presidency with her daily job as general manager of London’s Paddington and North Kensington Health Authority – comprising the world-famous St Mary’s Hospital and the third most socially deprived district in Britain.

Since moving to Paddington five years ago from Haringey, where she was district administrator, her self-styled ‘bullying tactics’ have produced cost savings of an average Pounds 1 million a year and a revenue of Pounds 2 million a year from private and overseas patients, as well as generating Pounds 2.6 million for funding such projects as an Aids program and continued the reduction in the number of hospital from nine to five.

Every year the district spends Pounds 4 million on new buildings or refurbishment, treats 29,000 in-patients and 107,000 accident or emergency cases, and screens and treats 42,000 people in health clinics, schools or their own homes.

‘I have a management staff of 250 people here and our costs are 3.9 per cent of turnover. That’s a pretty respectable statistic by anyone’s standards,’ she says. ‘The Health Service has delivered a finer program of cost efficiency than any other British public service in the last five years. We perform better than any other health service in the developed world. And yet there’s still room for improvement.’

The next move towards greater efficiency, to be recommended by Sir Roy Griffiths, managing director of J. Sainsbury, the supermarket chain, and Mrs. Thatcher’s adviser on the NHS, is for Britain’s town halls to take over responsibility for millions of mentally ill, chronically sick and handicapped people who currently come under NHS care.

Miss Young agrees that many councils would be ideally placed to administer such community care but has one serious reservation: ‘Those areas in which the need is greatest are exactly the ones whose local authorities are most severely rate-capped. Why they are rate-capped is no concern of ours – the fact is they will have difficulty in finding the resources and people will suffer.’

Nor is she happy with the philosophy, expressed last week by junior health minister, Edwina Currie, that the nation’s health would be best served on a two-tier system, with those would could afford it turning to private insurance and the NHS looking after the remainder. ‘Look at the system in the United States,’ she says, ‘and you discover that one of the things that happens is that the poor and the chronically sick get a bum deal.

‘Competition is not interested in areas where the potential is low and there are now 40 million people in the States who don’t have access to a decent health service. I don’t think people in this country really want to see a two-tier system.

‘And private insurance is a very inflationary way of running a health system. Patients expect greater comforts like Ph.375 and better food. No one can blame them for that, but money spent on television sets and so on adds to the overall cost of providing a service. Private hospitals also tend to go in for duplication of services because they have to compete with their neighbors on equal terms and that is inefficient, too.’

Sir Roy, who was called in by Mrs. Thatcher in 1983 to introduce into the NHS the kind of dynamic managers who run major companies – and who recommended the switch from district administrators to managers – believes that the quality of NHS management today is ‘quite good – but patchy’.

There are enough examples of well-run hospitals to show what can be done, he says, and ‘a handful’ of managers he would be happy to have with him at Sainsbury’s. Out of 192 districts in the country, that sounds ominously like damnation with faint praise.

To this suggestion, Sir Roy responds that a National Health Service manager with control over a budget of around Pounds 75 million – in the same league as the top 20 or 30 companies in the country – earns about Pounds 30,000 a year, which is not sufficient to attract the people with the same massive experience and support back-up enjoyed by big business.

On this, at least, Miss Young is totally in agreement. ‘Compared with other European countries our salaries for medical and non-medical staff are very low,’ she says. ‘If we are going to have a National Health Service which has the interest of the public at heart, there have got to be incentives so that doctors and other professional staff are motivated to provide it.

‘Of course we can, and must, look at ways in which we can generate income. Doing deals with the private sector – commercial sponsors, Kentucky Fried Chicken in the front hall, Adidas heart transplants, diet pills, that kind of thing – is all very well if they can be achieved without diverting staff from their main purpose.

‘We even discussed asking Virgin Atlantic to sponsor our nurses’ training.

‘If we’re lucky, in this district we’ll make Pounds 1 million a year from commercial methods. But out of a budget of Pounds 80 million, that isn’t going to solve the problems of the health service. Something as fundamental as health shouldn’t really have to depend on other people’s generosity.’

So are there no obvious ways in which she could improve the efficiency of the district? ‘There is still too much bureaucracy at my level and above. Twenty per cent of my work is not about running my health district but simply being accountable. It’s hard to be efficient when you have to spend so much time telling people how efficient you are!’

One man who epitomizes the new spirit of commercial adventure within the NHS is ironically a one-time Labor councilor. Now describing himself as a political agnostic, Dr. Ken Grant is district general manager of City and Hackney Health Authority, which includes St Bartholomew’s Hospital, and in the past year has introduced a succession of controversial income-generating innovations, such as Ph.375.

In that time he has set up two in vitro fertilization clinics with the private sector, shared medical equipment with a private hospital, started charging other authorities for services, and opened a fee-paying breast cancer clinic to screen women aged over 40 in the City., ‘We are now building up a relationship with a private hospital so we can obtain funds when our doctors refer business there,’ says Grant, whose scheme to introduce sponsored operations at Barts has so far failed to attract the involvement of local companies. ‘We’re being held back because I don’t have enough time and so I’m looking to employ someone specifically to work on this area of marketing.’ Compared with a budget of more than Pounds 80 million, however, is even an income of Pounds 1 million from such private enterprise really worth the trouble? ‘Of course it is. You’ve got to invest in order to save and if I can raise Pounds 1 million by spending Pounds 100,000 that’s got to make sense.

‘But let’s get things into perspective. Profit in the private sector is about five per cent of turnover. At the present rate, we are looking at a deficit of Pounds 20 million on a budget of Pounds 90 million in 1991. To recover that we would have to be doing Pounds 800 million worth of business, which is about half of the whole UK private market. We can improve things by our own efforts but we can’t save the health service that way.’

Tempus: A Monopoly Sweetener For Tate & Lyle

There should be quite a bit more sweetness and light round at Sugar Quay, Tate & Lyle’s headquarters, after yesterday’s Monopolies and Mergers Commission’s report.

True, Tate will not now be able to gain control of Britih Sugar. But then it cannot be amazed about that.

Nor can it look forward to a unified British sugar industry which could perhaps speak more effectively for its interests in Brussels than either company could individually.

But it has not come out of the MMC review empty-handed. It has a long last got some official recognition that it gets a raw deal under the CAP sugar regime.

The MMC has recommended that steps be taken to increase the cane-refining margin. In this cannot be done at Community level, it suggests a subsidy either to the cane suppliers or direct to the refiner.

But subsidies can disappear overnight with a change of government. So Tate would much prefer to see changes in the legislation which would give it protection from the effects of a price war with high margin beet sugar producers.

When beet margins are pounds 60 a tonne and cane pounds 20, Tate & Lyle can survive. Take pounds 15 off each margin, and the cane refiner comes periously close to losing his margin altogether, while the best sugar producer still makes enough to remain comfortably in profit.

Tate had to endure the damaging effects of a price war last year and had no desire to repeat the experience. This year margins, to quote Tate, and ‘not far from being adequate’ which probably means that they are quite good. For the current financial year analysts are therefore looking for pretax profits of pounds 90 million to pounds 100 million.

Further in the future, there is the enticing prospect of Tate’s new sweetener, Sucralose. The shares stand on a 30 per cent discount to the market, a rating which is undrservedly low.

Once Ferruzzi has reduced its stake in S & W Berisford, the latter company will be left with two shareholders with 15 per cent each. Ferruzzi and Tate. They may protect Berisford from a bid, or encourage one.

In the meantime, the market for Berisford’s shares will be weak as the Ferruzzi position in unwound. The shares stand at just half the market multiple, but with no obvious bidder in sight, they still look expensive.

Mr Tom Cowie, the motor dealer and former Sunderland Football Club chairman, has more or less abandoned plans to float off his contract hire and leasing business.

And well he might. As was revealed yesterday, the finance arm of the T Cowie motor dealership group is in sparkling form.

The 21,000 cars in the contract hire fleet – second only in size to Dial Contracts, a subsidiary of Barclays Bank – is Cowie’s fastest-growing area and chipped in profits of pounds 5 million, up from pounds 2.7 million, towards a group total of pounds 8.2 million. This was a greater-than-expected rise of 102 per cent over the previous year and sent the shares up 80p to 385p.

The finance division could probably have been floated off for about pounds 40 million and the temptation must have been strong.

The motor division advanced strongly from pounds 1.8 million to pounds 3.1 million but the performance owned much to the group’s decision to rev up its used-car sales, and parts and servicing.

The actual profits from new car sales dripped as hard-passed manufacturers throttled back on bonuses being offered to distributors such as Cowie. The profit margins, in particular on volume makes such as Ford, are now described as wafer-thin.

Mr Cowie is toying with a number of medium-size acquisitions – which could cost up to pounds 25 million – but it coy about his intentions towards Lookers, the Manchester car distributor in which he has built up a near 15 per cent stake. A bid has to be the favourite option.

Here we have a novel situation. Holders of more than 65 per cent of the ordinary shares in London and Northern, the construction to healthcare group, have accepted an offer for their shares by another company. Demerger Two, many of them on the advice of their own directors.

For Demerger to complete its plans, and for the accepting shareholders to collect their money, holders of a further 25 per cent need to accept.

But Demerger has now closed its cash offer of 81p a share, which has won the L&N board’s recommendation – but not their acceptance – and the L&N board believes it has won. Demerger is dead, says one of its directors.

Far from it, says Mr Peter Durch of Demerger. With 65 per cent of the shares under his belt, he believes the L&N board is totally discredited.

Mr Earl has 12 days to convince holders of the 25 per cent he still needs that the four shares they will eventually receive under his plan, which is to split the group into four separate entities and then refloat them, will be worth more than each existing L&N share. Or that they should sell in the market. For the real battle has now switched to the stock market’s trading floor. Yesterday there were signs that both sides were in the market, and the shares reached 72p, its highest for a week.

The L&N directors, currently sitting on about 3 1/2 per cent, do not need to dip too deep into their pockets to block Demerger, particularly since up to 5 per cent of most companies’ shares are never voted, one way or the other. But even if the bid fails, their position looks untanable. Or it ought to be.

Mr Earl would be left with two options. To walk way or to form a new company to launch another bid which would require only 50. 1 per cent acceptances.

It should not go that far. Remaining holders of L&N shares face three options. They can sit tight, and back the present board, they can sell in the market, or accept Demerger paper.

What they should not do is to do nothing. With the final divided in doubt, L&N’s share price is probably worth no more than 50p. If they are still unconvinced by Mr Earl’s proposals they should take what they can get in the market.