An economist's perspective on the Francis report . . . Following allegations of seriously substandard care, the Secretary of State for Health in England announced a public inquiry into the Mid Staffordshire NHS Foundation Trust to be chaired by Robert Francis (a lawyer). The “Francis report”, issued in February 2013, contains 290 recommendations meant to apply across the NHS, not just to one hospital. This, in turn, has given rise to heated debates about quality in the NHS and how best to ensure it. OHE’s annual lecture in 2013, given by Prof Alan Maynard of the University of York, addressed quality issues from the perspective of an economist. Prof Maynard summarised his remarks as follows. The legal perspective to NHS problems is epitomised by the Francis report. The regulation has failed, therefore we must regulate more. All too often such reports are un-evidenced, un-prioritised, un-costed and not implemented. An economic approach to alleged quality, efficiency and expenditure difficulties faced by the NHS accepts that markets fail, governments fail and public and private health care organisations confront similar sources of inefficiency. The problems of clinical practice variations, over-diagnosis and patient safety are universal. They have defied the efforts of Royal Commissions, government structural “re-disorganisations” and public inquiries for decades. The market for health care is complex due to ubiquitous agency relationships which render purchasers of care price and quality takers. Repeated efforts to enhance transparency by the collection and use of outcome data to performance manage clinicians have failed for hundreds of years. Such data has not been used to enhance professional senses of duty and trust and to incentivise efficient practice. Perhaps it is time to adhere to Alan Williams’ maxim, “Be reasonable: do it my way”, when offering economic advice to NHS policy makers. Regulation has failed, but perhaps we can regulate less and regulate better. Use process and outcome data rigorously to identify clinical outliers and oblige them to “heal themselves”. Reinforce professional senses of duty and trust with non-financial incentives, and experiment and evaluate better pay for performance programmes. Current clinical efforts to enhance performance transparency are welcome and must be protected from reformers who still seek utopia through organisational reform.

1. Contracting for Quality in the NHS: Putting
the Francis Report into Perspective
Prof Alan Maynard
University of York
Office of Health Economics Annual Lecture
London • 16 July 2013

2. Outline
• Perspectives on quality in the NHS
• What are the problems?
• What have been the policy responses?
• What can economics offer?

3. Contracting for quality in the NHS:
a legal perspective
• Francis enquiry – product of a legal mind –
• Regulation has failed, so regulate more
– Three volume report, 1794 pages, 125-page
executive summary
– Almost 300 recommendations including
supplementing the NHS Constitution, rights,
more regulation, monitoring, compliance, and
enforcement.
• Not evidenced, prioritised or costed

4. Contracting for quality in the NHS:
an alternative perspective
• Health care – markets fail
• Government intervention is inevitable
• Regulation – necessary but not sufficient?
• 'Regulation benefits the regulated' (Stigler)
– Potential for regulatory capture?

5. NHS principles
• Income protection – avoiding catastrophic
medical costs
• Access to care on the basis of need
– relative cost effectiveness
• Expenditure control
• BUT……….

6. NHS problems
• Lack of incentives for efficiency
– Variations in clinical practice and over-diagnosis
• Poor NHS quality and problems with patient
safety e.g.
– Hospital inquiries e.g. Bristol and mental health
– 'Deviant' doctors': Shipman, Neale, Ledward
– All outliers in retrospective analysis of routine
data
• Lack of action – government and professional
failure?
– (BUPA and PROMs)

7. Variations: a historical retrospective
• Glover 1938
• Bloor et al 1976
• Wennberg and colleagues - 1970s onwards
– Includes McPherson, Wennberg, Hovind and Clifford
(1982)
– Wennberg's 'Tracking Medicine' (2011)
– In the US most variation in post acute care and
outpatients (Newhouse and Garber, 2013)

8. Variations: the policy debate
• Policy focus on cost savings
– Fisher and Wennberg – could save 30-40 per cent of the US Medicare
spend
– Cutler and Sheiner (1999) and Rettenmeier and Wang (2013) – 12-15
per cent saving
– McKinsey report (2010) – potential for £20 billion savings – the
Nicholson challenge. Now £30 billion!
• Is the savings potential real?
– Warranted vs unwarranted variations, waste vs need
– What would the real magnitude of savings be in the NHS?
• Reduce 'unnecessary' variations e.g. cardiac surgery
– To the extent that savings exist, how can they be 'harvested'?
– Barbara Castle's Priorities document in 1976: what goes around, comes
around! (Maynard, 2013)

9. Variations again: over-diagnosis
• Assume a normal distribution of a disease.
Research identifies where the numbers needed
to treat to save a life ensures an economic
return of 'saved patients'
• Pharmaceutical industry and 'medical leaders'
press for increased coverage even though the
rate of return is lower

10. US creeping/leaping diagnostic criteria
• Diabetes: reducing fasting sugar level from 140 to126:
produced 1,681,000 new cases (14%)
• Hypertension: reducing systolic from 160 to140, and
diastolic from 100 to 90: produced 13,490,00 new cases
(35%)
• Hyperlipidaemia: reducing cholesterol from 240 to 200:
produced 42,647,000 new cases (86%)
• Osteoporosis in women: reducing T score from 2.5 to
2.0: produced 6,781,000 new cases (85%)
• Numbers needed to treat to save one life inflated; with
nice profits for providers

11. Variations: patient safety
• US Institute of Medicine (1999): most efficient way of
killing Americans is to hospitalise them
– Medical errors in US hospitals kill 44–98,000 a year
– More deaths than from motor vehicle accidents (43,500),
breast cancer (42,000) and HIV-AIDS (16,500)
– Medication errors alone kill nearly three times more
Americans than died in 9/11 each year
• WHO expected 'standard' and estimated error rates in
UK hospitals: 10%
– With outliers like Bristol, Stafford and Morecambe Bay
(Barrow)?
– No data for primary care

12. Policy responses
• Political rhetoric
– Ideal and actual comparisons
• Litany of repetitive and unevidenced
'reforms' and 'inquiries'

13. Rhetoric and reality:
Williams' ideological jungle (1986)
• 'Pure' systems:
– Libertarian views create private systems
– Egalitarian views create public systems
– Both groups tend to compare ideal versions of their
preferred system with real versions of their opponents
• Basic weakness of both 'ideals' is the 'peculiar agency
role which doctors play
– Private systems – some cost consciousness at the micro
level but cannot control macro costs due to over-supply
– Public (tax financed) systems can contain costs at macro
level but are not cost-conscious at micro level due to
absence of low level financial incentives

14. Royal Commissions
• Guillebaud Report in 1956
– 'any charge that there is widespread extravagance in the NHS,
whether in the spending of money or the use of manpower, is not
borne out by our evidence'
• Merrison Commission in 1979 critique of 1974 reforms:
– 'An immense amount of administrative work in the preparation
for new machinery; disruption of ordinary work, both before and
after reorganisation caused by the need to prepare for and
implement the changes; the breakdown of well established
formal and informal networks; the loss of experienced staff
through retirement and resignation; the stress and strains of
some staff having to compete for new jobs'

15. Reforms and re-disorganisations
• 1974 administrative reorganisation
• 1983 introduction of general management
– 'If Florence Nightingale were carrying her lamp through the
NHS today she would be searching for the people in
charge' (Roy Griffiths 1984)
• Thatcher - 'marketisation' and the purchaser-provider
split
• Blair – development of the internal market and its
regulation
• Coalition – promise of 'no top down reorganisation'
followed by omni-shambles…

16. Little evaluation of reform
'It is one of the most characteristic aspects of the present
situation that specific reforms are advocated as though
they were certain to be successful. For this reason,
knowing outcomes has immediate political implications…
Ambiguity, lack of truly comparable comparison bases,
and lack of concrete evidence all work to increase the
administrator's control over what gets said, or at least to
reduce the bite of criticism in the case of actual failure.
There is safety under the cloak of ignorance.'
(Campbell 1969)

17. What can economics offer?
• Agency relationship – incentive compatible contracts
• How can these be designed? What information is
required?
• Emphasis on outcome measurement – key part of
contracting for quality in health care – why has it been
neglected?
• Cautious use of financial and non-financial incentives?
• W(h)ither the purchaser-provider split?

18. Agency – 'a pervasive fact of
economic life' (Arrow 1984)
• Principal-agent relationship/agency relationship: providers
tend to be autonomous
• They 'do not consider it their duty to see that good results are
obtained in the treatment of their patients' Codman (1918)
• Information asymmetry everywhere:
– Asymmetry of knowledge between patient and medical 'experts'
– Asymmetry of knowledge between purchasers
(government/CCGs and private insurers) and providers
– Asymmetry of knowledge between hospital managers and
clinicians
– Asymmetry of knowledge between clinical directors and
clinicians/clinical teams
– Asymmetry of knowledge between doctors and doctors

19. Hidden actions and hidden information
(Arrow 1984)
• Hidden action – patient does not know if the
agent is doing their best for them
• Hidden information – agent does not have all the
information about the patient
• Both affect the contracting outcome

20. Agents can have more than
one principal
• Blomqvist (1991) described doctors as 'double
agents'
– Acting on behalf of their employers (hospitals) as well
as their patients
• Hospital consists of two inter-acting firms
(Harris, 1977)

21. A single principal may have
many agents
• GPs as providers
– Agents of patients
– Agents of employers (NHS England)
• GPs as commissioners /other CCG employees
– Agents of patients
– Agents of local population
– Agents of government / taxpayers
• Hospital doctors and other professionals
– Agents of patients
– Agents of employers (activity based hospital rewards)

22. Complexity of contracting for quality
• 'Contractual relations are frequently a good deal more
complicated than simple models of exchange of commodities
and services at fixed prices would suggest' (Arrow 1984)
– Contracts between NHS England and GPs
• QOF is an attempt to contract for quality
– Contracts between commissioners and hospitals
• Some efforts to incorporate payment for performance
– Contracts between hospitals and employees
• Remain based on trust with some monitoring
• Potential for future experimentation with P4P?
• Design of incentive compatible contracts relies on
measurement of outcomes

23. Outcome measurement: Manchester 1803
'Medical Ethics' a book by Thomas Percival
(1803)
– advocated outcome measurement in terms of whether
patients were 'cured, relieved, discharged or dead'
– Percival argued that with such data:
'Physicians and surgeons would obtain a clearer insight
into the comparative success of their hospitals and
private practice; and (they) would be incited to a diligent
investigation of the causes of such difference'

24. UK Lunacy Act 1845
• Required all mental hospitals to measure outcomes in
terms of whether patients were
– Dead
– Recovered
– Relieved
– Not improved
• Failure to collect this information, starting within 2 days
of admission, led to a fine of £2
• This data was collected in mental hospitals and some
London acute hospitals until 1948

25. A nursing perspective
• Florence Nightingale measured outcomes in terms of whether
patients were
– Dead
– Relieved
– Unrelieved
• Note how these criteria emulated Percival and the 1845
Lunacy Act
• She argued in 1863:
'I am fain to sum up with an urgent appeal for adopting this or
some uniform system of publishing the statistical records of
hospitals. There is a growing conviction that in all hospitals,
even those which are best conducted, there is a great and
unnecessary waste of life……….'

26. Nightingale continued….
'In attempting to arrive at the truth, I have applied
everywhere for information, but in scarcely an instance
have I been able to obtain hospital records fit for any
purpose of comparison. If they could be obtained, they
would enable us to decide many other questions besides
the ones alluded to. They would show subscribers how
their money was being spent, what amount of good was
really being done with it, or whether the money was doing
mischief rather than good'

27. American advocacy of
outcome measurement
• Ernest Codman, 1915 advocated the measurement of
patient outcomes.
– 'Rewarded' by loss of practice rights at Massachusetts General
hospital
• He argued that 'it is against the interests of medical and
surgical staffs of hospitals to follow up, compare, analyse
and standardise all their results'
• He set up his own 'End Results Hospital' which followed
up patients after surgery and published mortality and
complications data.
– It went bankrupt…

28. Outcome measurement:
why such slow progress?
• Reagan ordered publication of mortality data by hospital in 1983
• Dranove (1993) analysed some risk adjustment problems in
cardiology/cardiac surgery
• UK CEPOD (1985 onwards) collected complication and mortality
data, but confidential and voluntary (and thus incomplete)
• Society of Cardiothoracic Surgery produces outcome data by
individual surgeon (2006)
– Feedback has led to improved average performance and reduced
variation: reported 50% reduction in risk adjusted mortality (Society
for Cardiac Surgery in GB & Ireland (2011)
• Comparable data released for 10 surgical specialties over summer
2013
– Problems of data quality, risk adjustment and 'confidentiality'
• Change at last? Why did it take so long?

29. Patient reported outcome measures
(PROMs)
• Data collection in England since 2009
– hip and knee replacements, varicose veins and hernia
repairs
– Further work on 6 chronic diseases and some CABG
patients
• Variations publicly available for clinicians,
commissioners and patients to access and use

30. Cautious use of incentives
• Who should use incentives?
– National or local decision making?
• What incentives work?
– Positive or negative? Rewards or penalties?
– Financial or non-financial incentives?

31. Non-financial incentives
• Measurement and transparency
– 'six sigma' quality improvement (Deming,
Toyota)
• Trust, duty and reputation
– 'Professional responsibility is clearly enforced
in good measure by a system of ethics,
internalised during the education process and
enforced in some measure by formal
punishments and broadly by reputations'
(Arrow, 1984)

32. 'Those general rules of conduct, when they are fixed
in our mind of habitual reflection, are of great use in
correcting the misrepresentations of self-love
concerning what is fit and proper to be done in our
particular situation. The regard of those general
rules of conduct, what is properly called a sense of
duty, is the principal consequence in human life,
and the only principle by which the bulk of mankind
are capable of directing their actions'
Adam Smith 1759

33. Confucius and O'Neill on trust
• Confucius argued that three things are needed
for government: weapons, food and trust.
– If a ruler can't hold on to all three, he should give up
weapons first and food next.
– Trust should be guarded to the end 'without trust we
cannot stand'
• 'We need (trust) because we have to be able to
rely on others acting as they say they will, and
because we need others to accept that we will
act as we say we will' O'Neill (2002)

34. Contracting for quality in health care:
financial incentives
• In primary care – quality and outcomes framework
– Some evidence of effects on outcomes and inequalities
– But at a cost of £1.2 billion.
• Premier-Medicare hospital programme and Advancing Quality in NW
NHS
– US results: no mortality benefits (Jha et al, 2012)
– UK results: mortality benefits (Sutton et al, 2012)
– Evidence of cost effectiveness of latter (HEc, forthcoming)
• Contracts can never be complete
– Incomplete information on outcomes limits potential for incentive
compatible contracts other than at the margin
– Partial contracts need to be supported by trust and duty
– Variations in local provider behaviour means that P4P interventions and
benchmarking may have differential effects (Newhouse and Garber,
2012)

35. Competition: striving for market share
• Variations provide opportunity for those with
comparative advantage to achieve success provided
few barriers to entry (Syverson 2011)
• Health care different?
– Variations, but barriers to entry
– Capital substitution constrained
– Lack of ownership of variations and motive to compete
• Some evidence that public sector institutional
competition has a beneficial effect
– London/AMI
• Can we expect this to be replicated? ISTC
'experiment' not encouraging

36. Nirvana in the internal market?
'Commissioners - not providers - should decide what they
want to be provided. They need to take into account what
can be provided, and for that purpose will have to consult
clinicians both from potential providers and elsewhere,
and be willing to receive proposals, but in the end it is the
commissioner whose discretion must prevail'
Francis report 2013

37. Or abandonment?
• NHS commissioners in England remain price
and quality takers
– 'If one day subsequent generations find you cannot
make commissioning work, then we have been
barking up the wrong tree for the last 20 years.'
(Ken Clarke, 2008, cited by Timmins 2012)

38. Conclusions: an economist's agenda
• Futility of public inquiries and 're-disorganisations'
without implementation of evidenced change
• Need for piloting and evaluation: move marginally!
• Transparency to identify outliers and endanger personal
reputations
• Incentive compatible contracts? All are incomplete, to
use them needs:
– monitoring of unwarranted variations to ensure that patients are
treated efficiently
– better use of outcome measures to ensure that patients are
treated appropriately
– physicians and surgeons to be transparent about performance
with rigorous peer review, as advocated by Percival (1803)

39. And finally…
• Time to pause and reflect why is all this so
difficult?
• Are decision makers stupid or ignorant, or both?!

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