NHS merger costs are over-egged

NHS merger costs are over-egged

The idea that NHS mergers are an extravagance is a myth. A healthcare merger is no more costly than a large well-managed performance improvement or cultural change project, which is what it often is.

Partner

KPMG in the UK

Contact

Also on KPMG.com

NHS merger costs are over-egged

The idea that NHS mergers are an extravagance is a myth. A healthcare merger is no more costly than a large well-managed performance improvement or cultural change project, which is what it often is.

We often associate healthcare mergers with enormous headline costs. Unsurprisingly, that generates outrage from commentators, politicians and members of the public. It is entirely reasonable to ask why it should cost hundreds of millions of pounds to bring two NHS organisations together.

Having said that, the headline figures can be extremely misleading. Ultimately, the transaction cost of the merger is minimal. The real costs arise from underlying problems that led to the merger in the first place. It is these issues that make for big numbers: the cost of fixing deteriorating estate, reorganising staffing to clinically safe levels, planning the merger, or implementing improvement plans. Even costs that look like “wasted transaction costs” are often aimed at giving the organisation clear and reliable management information needed to plan a sustainable future.

When you bring two organisations together, you need to cross-fertilise the best of both. That requires people to understand what each organisation does and the costs and benefits of those approaches. You need to document and share processes. That is a lot of work in organisations each with up to £750 million in turnover. This requires an investment but doing it well will save much more in the end.

Unlike the private sector, the NHS faces political interference. There is much more scrutiny around failure than not achieving more success. This means mergers within the NHS almost always come about as the result of failure, often financial, leading to one trust acquiring another.

You can’t simply put a high-performing and a failing trust together and expect it to work. That would financially undermine both and standards would probably drop. Acquirers need financial assistance from NHS England or the Department of Health to take on failing trusts and invest in solving the problems, hence the “inflated” headline cost.

Merging two high performing trusts without a backlog of failure would mean much lower costs. High performing organisations merge frequently in the private sector, but in the NHS (an organisation currently motivated more by need than opportunity) there is no burning desire to go through such a difficult process.

Due diligence involves going through both trusts’ liabilities – on and off the books – and this often unearths much deeper problems. In the case of the Mid-Staffordshire merger of four trusts in 2006, for example, tens of millions of pounds were required to bring the site up to minimum regulatory standards after decades of under-investment.

Neglected estates are hardly confined to Mid-Staffs. In London, 25% of the hospital estate predates the establishment of the NHS, 34% of the GP estate requires rebuilding and a further 44% requires repair. In other mergers, financial assistance is required to improve technology, equipment or staffing levels. Not addressing these liabilities is a false economy, leading to further financial pressure and ultimately failure.

I think it is vital we do not let cynicism about change blind us to the depth of the problem that can be solved through mergers. Talk of costs make for good headlines, but the costs are not all they seem.

Hospital collaboration in the NHS report

This paper sets out to expose some of the myths about healthcare collaboration

 
Read more

Hospital collaboration

Exposing some of the myths about healthcare collaboration.

 
Read more

Connect with us

 

Request for proposal

 

Submit

KPMG’s new-look website

KPMG’s new-look website