Charging for capital in the NHS trusts: to improve efficiency?

Abstract

In the early 1990s the Government reconfigured the NHS hospitals as public corporations in the public sector providing acute health care services and the Health Authorities and GPs as purchasers of such services. This article examines empirically the validity of both the implicit assumptions and the explicit objectives of introducing capital charging into the NHS Trusts. It compares the incidence of capital costs and charging; the relative efficiency of the public and private sector in respect of both asset and labour utilization; and assesses the value and implications of capital charging as a managerial solution to the perceived problems of the NHS. The analysis demonstrates a number of important points. Firstly the original problem definition was wrong. Capital costs were not a major cost. But the Governmentapos;s `solution' to the `problem' threatens the financial viability of a significant number of hospitals and the ability to deliver health care services in the future. The real problem was a lack of revenue. Secondly, accounting information is a powerful tool in the evaluation of outcomes of business and public policy decisions. It signifies that accounting can be used as evidence to inform some of the public debates of the day. Finally, one obvious and practical benefit of the introduction of capital charging has been to provide the accounting data that demonstrate very clearly the superiority of a publicly funded hospital system at a low cost over private hospitals which operate on a for profit or non-profit basis. It challenges the myth of public sector management inefficiency.