NHS Cost Effectiveness

Financial efficiency is about how effective a business is in using its money, its assets, or its liabilities to generate revenue, profit and cash flow – all whilst keeping waste minimal. 

For the NHS, this is a little different. As a public health service funded by public taxation (primarily National Insurance), the NHS’ goal is to provide the best quality care possible whilst adhering to budgets in order to ensure reliable service provision for the public as and when they need it.  

This effectively boils down to “How much health benefit do we get for every pound spent?”.

Efficiency vs underfunding

Efficiency is often conflated with underfunding when it comes to finances. If there’s reduced money being put into the NHS, it would be unfair to judge overall provision of services. Instead, you’re measuring efficiency – how well the money is being used and how good the provided services are. 

Tabloid-style media coverage often generates a sensationalist public discourse about spending more vs cutting costs, as the black and white approach to making the NHS better. The reality is that you can operate on a reduced budget by facilitating good work practices and a fair work environment.

How to measure financial efficiency

As a public health provider, any efficiency measurements must prioritise patient outcomes rather than activity or savings. For the NHS, that means measuring financial efficiency by looking at things such as the cost per patient treated, the outcomes per Pound Sterling spent, the administrative spend as part of the overall budget, as well as other indicators around staff productivity, bed occupancy and discharge speeds, and comparisons to international healthcare systems. 

It’s worth noting though that measuring efficiency is complex. Different NHS Trusts and boards will have different demographics, data limitations through staff or software, and then the time lags that need to be accounted for as information comes in and is processed but also as people go through their healthcare journey.

The NHS is approximately 99% funded by taxes. The British public pay taxes in general, but we also pay National Insurance contributions as a deducted sum from our wages. 

According to The King’s Fund, “A small proportion of funding (1% of the total Department of Health and Social Care budget in 2023/24) comes from patient charges for services such as prescriptions and dental treatment.” 

NHS funding is set by devolved governments, meaning Westminster sets NHS England’s budget, whilst the Senedd handles NHS Wales, Holyrood manages NHS Scotland, and Stormont is responsible for Health and Social Care Northern Ireland (HSCNI). 

Funding is typically granted on an annual basis for each financial year, determined by the Chancellor and a team of politicians and economists as part of ongoing spending reviews to ensure government budget is allocated appropriately and fairly. 

The OECD’s Data Explorer puts UK spending on healthcare (as of 2023) at 10.9% of GDP – the same as Sweden and Belgium and comparable with Germany, Canada, Japan and New Zealand. This does come with the reminder that the NHS is free at the point of use though, where many other nations are not.

NHS costs

NHS expenditure covers a wide range of categories, which we list below. Please note that some of these costs will be UK-wide, whilst some are NHS England only, based on available figures. 

 
Workforce: As NHS expenses go, this is the main outgoing. Based on King’s Fund statistics, approximately £81.7 billion is spent on doctors, nurses, and other healthcare professionals, accounting for 49.2% of the NHS budget. 

Acute Care & Primary Care: The NHS England website lists their Payment Scheme and payment mechanisms, as well as the average costs for acute care, but there’s no real split in the reporting between acute and primary care as allocations go out to Integrated Care Boards. 

The sum for England in 2023/24 was a total of £188.5 billion on all health and care services, including GP surgeries, mental health services, community care, dentistry, optometry, emergency services and hospital services. 

This figure may rise as the incumbent government seeks to drive more neighbourhood care services. 

Medicines: NHS figures report £21.6 billion is spent on primary care medicines and hospital-issued medicines, as well as a marginal extra sum for things such as dental prescribing. The ONS data from 2023 lists total pharmaceutical expenditure – including vaccinations – at £35.9 billion. 

 
Medical Technology: The Association of the British Pharmaceutical Industry (ABPI) reports that as of 2023/24, the NHS spent £19.9 billion on medicines, appliances, and medical devices. This covers things like monitoring equipment, diagnostic devices, catheters, and other assistive tech. 

 
Estates & Infrastructure (inc. IT): Buildings cost, and so does software. In 2023, UK healthcare capital expenditure was £12.2 billion (based on 2024 prices), including £2.1 billion for research and development. This represents investment in hospitals, community facilities, digital tools, and large maintenance programmes.

As shown above, it’s staffing and hospitals that are the majority of the healthcare budget, so when we discuss the NHS and its efficiency again it’s important to focus on care delivery rather than opportunities for cuts and downsizing. Public healthcare is a political choice but one the UK has chosen, and the NHS is the delivery vehicle. Efficiency is about making this as successful as possible based on democratic wishes. 

The NHS has its strengths and its weaknesses, and these show up more when compared to other international health systems. 

The Good: 

The Commonwealth Fund has a comparative health system analysis of high‑income nations and ranks the United Kingdom among the top three overall, specifically noting strong performance in administrative efficiency, equity, and access to care. This puts it behind Australia and the Netherlands. 

It’s interesting that a lot is said in the UK media about cutting red tape and issues with middle management, and yet despite these concerns, the NHS is performing extremely well from an admin perspective. 

The Bad: 

The CEOWorld global health care rankings give the UK a score of 47.15, which is below many major countries like the Netherlands and Australia, but also nations like Sweden and South Korean. 

Their assessment looks at things like healthcare infrastructure, government readiness, and medicine availability, all of which is relates back to system efficiency. In their analysis, they state that the UK’s score suffers because of strained hospital capacity, limited infrastructure investment, workforce pressures, and the long waiting times. 

The Workers: 

With the NHS spending so much on its workforce of over one million people, it’s no surprise that the workforce is the first place we highlight inefficiencies. 

Agency and locum costs are greater than pay for salaried staff due to the urgent or last-minute nature of their hiring. These professionals are needed due to staff absence, whether through sickness, turnover, or burnout, and it’s the last two are areas where the NHS really needs to improve. 

Budgetary restrictions have meant a slower rate of recruitment and difficulty retaining staff and preventing them from leaving for other countries like Australia and Canada to work for better pay. Solutions providers like The Access Group offer software that can enhance workflows and generate efficiencies, but it’s on the NHS to pursue smart solutions like these and to invest in recruitment retention and wellbeing to ensure a more satisfied workforce. 

System Blockages: 

Delayed discharge is a continued problem within the NHS, as patients medically fit to leave hospital are unable to. This is a knock-on effect from the UK’s problem with social care provision, and a shortfall in workforce to provide said care, and as a result hospitals are crowded and ambulances carrying urgent care admissions are delayed. 

It’s not just social care at fault – housing issues and community support gaps also play a part – but the combined effect of these then impacts acute systems. 

Computing: 

The NHS is full of old computers, old systems, and old software. It’s unfortunate, but technology is rapidly evolving, and the service has been left behind as programmes grow in capability and computers need more capacity. 

The goal now is for the NHS to have a more consistent procurement approach, utilising economies of scale to get the best value for money when buying from providers like The Access Group, but this pursuit of value, and for modular or interoperable solutions, is recent, and many legacy systems are locked to the proprietary technology of their makers – limiting the opportunities for trusts and health boards to make improvements.

Is the NHS cost effective? Yes 

Could the NHS be doing better? Yes 

It’s possible for a health system to be both underfunded and highly efficient, and the NHS is just so, but its challenge is spreading that efficiency across the system – not just within administration. What our article above shows is that the NHS is a strong health service, and especially so when considering it’s free at the point of use for nearly all use cases. The delays caused by the pandemic, tighter budgets, workforce shortages (some driven by Brexit, some by tighter finances), and the growing demand for healthcare from an ageing population… it’s a lot for healthcare globally. 

The current UK government has rightly acknowledged that it needs to be proactive, not reactive. A prevention-first mindset will go a long way towards resolving avoidable illness. Greater investment in public health, education, health literacy, prevention… the combination of small improvements will lead to big change. 

The NHS isn’t being especially wasteful, but it must strive to be on the cutting edge of efficiency - especially concerning technology and software solutions. If discharge delays can be cleared, staff admin reduced, and staff retention improved, the NHS will see itself flourish in the coming years.