Beyond the headline – wealth creation


The term “wealth creation” has found its way into the NHS language over the past three years. It is one of those terms that is easily and frequently used by politicians and the media but quite difficult to define. This is certainly true for many public policy buzzwords, and would not be a concern were it not for the fact that wealth creation is now an explicit contractual obligation for the newly established Academic Health Science Networks (AHSNs). It is also one of the objectives for the Mayor of London’s London Health Commission.

It is therefore timely and necessary for us to move beyond the headline to a more systematic understanding of the relationship between health and wealth, and what levers the health sector has to foster wealth.

At its most basic, wealth creation is about the accumulation of assets through long-term investment. In this context, the term assets can be defined in its narrow financial context or more broadly including wider wellbeing measures e.g. the creation of health itself. In what follows I will mainly look at the relationship between health and healthcare and its relationship with economic performance and in particular, GDP. Starting with a narrower definition of wealth creation is not to say that a wider context wouldn’t be desirable. However, basic economic theory provides a neat conceptual framework to map these relationships more clearly and systematically helping to frame an already vague debate.

The purpose of this note is limited in ambition and focuses on two primary aims:

Firstly, the specific ways in which health and wealth interact are explored to inform a more informed discussion about the relative role of enablers, with a particular focus on innovation. This is a crucial underpinning of any wealth creation strategy – whether for AHSNs or the London Health Commission.

Secondly, and as will hopefully become clear towards the end, the framework set out in this note may enable a more sophisticated and integrated public narrative addressing possible concerns that economic performance and health outcomes are in conflict.

I apologise in advance for employing a rather dry economic lens and language (though I probably also need to apologise to any serious economist for the loose use of such language and concepts). The note is more a “shopping list” than a coherent narrative and foremost a note to self rather than a polished blog.  However, I strongly believe that at this stage being clear about the conceptual framework will help structure the very many discussions on the issue. This is work in progress and any comments or challenge are strongly encouraged. The challenge going forward is now to populate this framework with evidence and numbers.

If you have had enough already, the key take-away messages are:

  • The relationship between health and wealth is bi-directional and there are significant overlaps in objectives;
  • There are many channels in which health and wealth interact but innovation is the key driver of permanent economic growth;
  • We currently know little about the magnitude or relative importance of different barriers and enablers to innovation to allow for local and coherent strategies to be developed;
  • While more innovation is welcome and we should ensure a thriving pipeline, the more pressing issue is getting significantly better at the adoption and diffusion of innovation to realise the full health and wealth benefits. This is potentially one of the biggest contributions the NHS can make to wealth creation; and
  • The explicit distinction between adoption and wealth creation in the AHSN objectives is therefore artificial as one enables the other.

How healthcare and economic growth interact

First, a word of caution. It may come as a surprise, but despite thousands of studies and economic growth being the preferred measure of a nation’s prosperity, there are still plenty of unanswered questions about the exact drivers of growth. However, there are a few general conclusions. One of these is that we have to distinguish between things that simply provide a one-off gain in the level of economic growth and those that have a permanent impact on the growth rate i.e. the annual change in economic output or GDP. It is the latter that economists are most interested in as it provides the biggest gain and there is a degree of agreement that only two things are able to shift the growth rate: population growth and technological change.

With this in mind, there are broadly six ways in which healthcare interacts with economic performance:

  • First, healthcare provides jobs. Up to 10% of the workforce across most European countries is employed in the health economy. With a job comes income and demand for goods and services which in turn impacts positively on the level of economic output. This is part of what is commonly referred to as fiscal multiplier and why the NHS budget of £100bn “buys” significantly more value. The relationship also works the other way with jobs providing health. There is now a robust evidence base that employment improves both the physical and emotional wellbeing (though some would argue that this crucially depends on the degree of equality in a society or in the case of employment job satisfaction);
  • Second, and the flipside of the pervious point, healthcare is consuming products of other industries and therefore provides a market in itself which makes a positive contribution to the level of GDP;
  • Third, healthcare organisations are able to attract external R&D funding e.g. from industry or the EU. This generates income and jobs with a positive effect on the level of GDP and ultimately on health outcomes via innovation (see below);
  • Fourth, healthcare improves the health of the population and a healthier workforce is a more productive one e.g. through reduced sickness absence and longer life expectancy. In so far as this leads to population growth (e.g. from lower morbidity) it can have a permanent impact on the growth rate though the larger effect is likely to be on the level;
  • Fifth, healthcare can be exported and generate income. This is not an area of natural strength for the NHS compared to other health systems such as the US but there are examples of health services being provided by NHS organisations abroad;
  • Sixth, innovation in healthcare may improve the efficiency of the sector and therefore permanently improve the growth rate of the economy.

As set out above, changing the growth rate rather than just the level of GDP is of particular importance for economic prosperity. Given the overall budget constraints in the NHS, focusing on employment or an expansion of the health sector as a whole seems an unlikely policy goal.  Innovation has therefore a special place as it has the potential to simultaneously increase economic growth, reduce costs, and improve health outcomes. Much of the rest of the note will therefore focus on the mechanisms of creation and absorption of innovation.

Not all innovation is equal

Broadly we can distinguish between at least three different ways in which innovation can affect growth:

  • First, an innovation leads to technical change and therefore improves the operational efficiency of a healthcare provider. This may or may not lead to improved health outcomes as well but is primarily about achieving the same with fewer resources.
  • Second, an innovation leads directly to better health outcomes (e.g. vaccine) but may not actually reduce the costs i.e. achieves more with the same resources. A combination of one and two is of course possible.
  • Third, an innovation may have a market value in itself and can be sold generating additional income. Compared to one and two, this would not affect the growth rate but merely shift the level of economic output.

The source of innovation matters

Now that we have gone through the different channels of how innovation can impact on economic growth and health outcomes, it is worth examining the importance of the source of innovation. In principle, innovation can originate from a number of sources including patients, healthcare professionals, academia, and the voluntary and private sectors. Of course, it is also possible that an innovation has been developed outside the UK rather than in our health economy.

Does the source matter for economic output and growth? It certainly does. To understand why, let’s assume an innovation has been developed by a clinician in a local hospital trust. If adopted by the trust, this may improve the efficiency or the quality of outcomes or both. As discussed above, this impacts positively on economic output and growth. However, unless the innovation is commercialised, it will not generate additional income for the individual or trust to reinvest. This would be different if the innovation had been developed by e.g. industry and sold into the NHS. Not only would this generate income for the company and therefore contribute to economic output, but the company is also likely to employ staff in the UK and pay taxes. What this example shows is that marketization of innovation offers potentially additional positive gains to the economy as a whole but it also shows that a lack of commercialisation doesn’t preclude the realisation of health gains.

Location matters

There are some obvious reasons why having industry developing innovations in the UK rather than abroad is good for the economy. But there are reasons beyond the immediate gains such as tax and employment. In many cases, industry will develop new products and services in conjunction with healthcare providers and patients (even more relevant these days, see industry section below). This may have additional benefits such as speed of adoption, early access to innovation and attraction of a better workforce.

New versus existing innovation and the speed of adoption

It is also worth exploring the difference between new and existing innovations for a moment. It is arguably the case that the performance of the NHS could be significantly improved if only all providers implemented the available innovation e.g. NICE guidance. One of the key enablers for innovation to have an impact is therefore the speed of adoption. I have not seen any assessment of the forgone health and efficiency gains for the whole of the NHS from adopting best practice but I know that some of this work is now starting in some clinical areas.

Barriers to innovation

The simplistic framework set out above may appear overly structured. I would argue that it is only once we are clear about the various transmission mechanisms between health and economic performance that we can look at barriers that may impact on these mechanisms in more detail, and if necessary devise strategies to remove them.

Despite the prominence of the issue, few comprehensive assessments of barriers exist that would allow us a meaningful understanding i.e. can be translated into local actions with impact in high impact areas. This is not to say that there is no evidence. For example, the NHS National Institute has conducted research into the various drivers (as well as produced change management toolkits of some quality which in many cases sit unread on management desks). There is also some international evidence on what matters set out in a recent paper on the Global Diffusion of Healthcare Innovation (GDHI) which maps out seven drivers identified by healthcare professionals. Just this week NESTA launched a new report looking at the uptake of innovation in primary care and the complex drivers. All of these are helpful and very timely.

One of the pressing tasks for AHSNs and the London Health Commission is therefore to bring together existing knowledge to understand and quantify barriers in the various local contexts to prioritise and develop interventions. It is only then that we are in a position to develop strategies. Everything short of this may have the right intention but in a world of constraint budgets focus on high impact areas is paramount (actually it is high impact areas for which feasible solutions exist i.e. may yield a different list).

Many of us are only at the beginning of this process and I would therefore like to suggest a (incomplete) list of barriers against which this may be done. I distinguish two high level (i.e. adoption and creation of innovation) and a number of specific categories:

Adoption of innovation

The first high level category looks at the potential barriers to the adoption of innovation. As shown above, the failure to adopt is indeed a serious problem as it by definition prevents healthcare from realising the benefits of progress and renders innovation pointless. A debate about wealth creation that focuses solely on new innovation without worrying about adoption and diffusion will fail.

Is adoption actually a problem? There is some evidence to suggest that the adoption of innovation in the NHS is slow (a popular figure is 17 years from bench to bedside but this seems to be a US figure) and subject to significant variation (see e.g. adherence to NICE guidance or QOF performance in the Atlas of Variation). There are very many underlying reasons for way this may be the case and the following list is most certainly not comprehensive:

  • Switching costs: change often doesn’t come cheap and requires upfront investment both in monetary (e.g. temporary double running of services or funding to acquire new technology) and non-monetary terms (e.g. learning of new policies or procedures and time it takes to identify innovations, achieve buy-in for switch, and translate them to the local context). This is true for any business and can lead to path dependency and inertia in the adoption of new technologies or services. In some cases it also means that “old” procedures or ways of working are never explicitly exited creating multiple and confusing layers of operational or clinical practice (the GDHI sets this out in more detail).
  • Awareness of innovation: adoption of innovation requires the knowledge of the innovation in the first place. One of the ironies of our information age is that the sheer volume of new knowledge that is generated is extremely hard to keep on top of, especially for clinicians (one study estimates that doctors trained in epidemiology would take an estimated 627.5 hours per month to stay on top of journals). I have also heard from staff that empowerment to venture beyond organisational boundaries is often lacking – even if that is more often than not a perceived lack rather than explicit. Creating a genuine learning organisation that is curious enough to constantly challenge their own service and practice remains a very difficult task. And there is a contradiction in this. On the one hand, the NHS has been criticised for being overly focused on sharing rather than protecting innovation. On the other hand, not enough use is made of the available innovation. However, even where this is happening, the dispersed nature of knowledge makes assessing the validity sometimes difficult too, especially for the hundreds of service innovations
    that are being developed locally every year and which are not subject to NICE or other national scrutiny. A final point that falls broadly into this category is a particular attitude amongst NHS staff that has been labelled “Not Invented Hear”. I have never been clear how widespread this is (though I have certainly come across examples) and whether it originates in pride, lack of trust in others to have ideas or general laziness to challenge one’s ways.
  • Accountability and leadership: while the NHS as a whole has been likened to a “command and control” system, local organisations are often far from, and the powers of CEOs and other senior management are surprisingly limited to drive lasting change. Management comes and goes, clinical staff are far more permanent and skilled in absorbing structural change without necessarily changing individual practice. Of course this is a crude generalisation to make a point and there is amazing change happening in many places. However, in my experience they are the exception not the rule which explains the significant variation in service performance and adoption of innovation.
  • A culture of targets: another explanation that has been put forward is that over the years the NHS has grown accustomed to a culture of targets and indeed become very good at meeting them regardless of how well or otherwise they are designed. However, the changing nature and multiplicity of targets can mean that other things get deprioritised, even if they may be best practice simply because there is not the bandwidth in organisations to purse a great number of priorities. I have certainly seen how powerful targets are in focusing the minds of management and clinicians and how perverse some targets can be.
  • Trust in industry: a concern that one comes across frequently is a deep-seated mistrust of industry, particularly the pharmaceutical industry. This is not the place to explore this further and discuss the relative merits of the various arguments, but it is certainly an issue that deserves to be taken seriously even if only to avoid it being used as an excuse. One of the roles of the AHSNs is to build bridges between industry and the NHS, and the various transparency schemes such as AllTrials will help.
  • Procurement: one of the most common complaints from industry is about the NHS procurement process and this is a well-documented issue. A key challenge is the – real or perceived – mismatch between what industry is selling into the NHS and the real need of the NHS frontline. Again, AHSNs have a role to play by identifying genuine need and ensure a better match. But at least in the short-term this will be relatively small compared to the £20bn the NHS is purchasing annually.
  • Patient empowerment: all of the above barriers concern the supply side i.e. healthcare providers. This ignores the potential power of patients demanding best practice treatments. This is already a powerful lever in some areas e.g. HIV where “expert patients” take a far more engaged role in their treatment. However, it is still incredibly difficult for patients to objectively compare and contrast providers and navigate a complex and ever expanding knowledge base. It is also still somehow counter cultural to challenge healthcare professionals on their choices.

Creation of new innovation

For the last section I implicitly assumed that there is a constant stream of innovation. As set out above, innovation can have all kinds of sources and the concern to keep this pipeline going or even grow is in part driving the wealth creation agenda. So, this section looks at the potential barriers that hinder the development of new innovations.

Innovation from within

Innovation occurs in all shapes and forms. A powerful source of innovation is the ongoing service reengineering that is happening on a daily basis on many wards and in many GP practices around the country, except, is often not labelled or recognised as “proper” innovation. As a consequence, much of this occurs unnoticed (though many organisations are now celebrating internal innovation through awards and prices), is not captured in such a way that enables easy replication (why is this not a requirement for every project that wins an innovation award or attracts charity funding?), or support in a systematic way by a well-resourced internal innovation infrastructure that encourages innovation but also shameless copying of existing innovations in other organisations (see awareness point above).

A particular issue that has been raised in this context is the lack of commercialisation of innovations from within in the NHS compared to other countries. Despite local innovation hubs, this remains a relative weakness. However, as set out above, this mainly affects the ability to generate additional income, rather than the operational, efficiency, and health gains.

Again, there are examples of excellence for all the above but these remain the exceptions not the norm.

Academic innovation

A second important source of innovation is the academic research infrastructure which includes Academic Health Science Centres, Biomedical Research Units and Centres, Universities and many more. The variety and scale of these organisations has been identified as a particular strength of the UK. Consequently, a lot of research is generated which is reflected in the relatively higher number of publications compared to other countries. However, what has been more difficult is to translate this research into practice or commercialise it. Again, these have quite different consequences for health and wealth as set out above and will require different strategies. AHSNs are aimed to precisely address this translational gap and help diffuse knowledge. But there are still a number of potential challenges including the strong focus on publications first by NIHR which is in some tension with the AHSN agenda of diffusion and commercialisation and needs looking at. Another one is the global competition for skilled staff, one of the reasons behind the MedCity initiative. Finally, there has been a proliferation of research organisations spreading funding thinly and making prioritisation and tracking difficult. The promised Sunset review in Innovation, Health and Wealth is therefore welcome if it achieves a more streamlined and focused innovation infrastructure.

Private sector innovation

The other source that most people would associate with innovation is industry. And it is industry that most of the public wealth creation narrative is aimed at. It is worth stressing again that this note is primarily concerned with the levers the NHS, and in particular AHSNs, have to foster wealth creation rather than wider industrial policy levers. That means that many of the wider barriers for industry may lie outside the NHS wealth creation scope. Again, being clear about the relative importance would be helpful to focus efforts.

  • Recruitment of patients for clinical trials is vital for the development of medicine and technology. In principle, the NHS as a national system should have a comparative advantage in this area but a multitude of R&D policies and the fragmented nature of providers and academic bodies is making realising this advantage currently difficult;
  • Bureaucracy and diversity of research policies across NHS organisations is a key barrier perceived by industry to conduct more research. This is of particular concern for multisite studies;
  • Co-location of industry with NHS organisations to utilise the complementarity of assets and skills. This has and remains a particular focus of the wealth creation agenda. London is pursuing a number of initiatives in this area to create an ecosystem for life sciences to flourish. Despite the strong focus on this area, it remains hard to quantify the importance and impact;
  • The pricing of drugs e.g. see ongoing discussions around Prescription Pricing Regulation Scheme and Value Based Pricing. This is quickly becoming an area so complex that even industry insiders struggle to fully comprehend but is of significant importance as around 10% of the NHS budget is spent on drugs;
  • The regulation of drugs e.g. through NICE or local formulary and the methodology used to accredit innovations are subject to ongoing discussions. But a key frustration among industry is the slow uptake even when innovation has been accredited (see comments above);
  • The tax and other regulatory environment is often cited as a deciding factor for big industry to make location decisions (though again it is not clear how prominent these issues really are and they are not levers available to the NHS);
  • The changing nature of drugs such as personalisation leading to smaller and more bespoke markets requiring new funding models to make investments worth the development costs. This may require new collaboration models between industry and the NHS which are yet to be fully developed. Again, a more aligned and less fragmented NIHR infrastructure is relevant in this context, so is cooperation between NIHR bodies within and across geographical areas.

Measuring impact

It should be clear by now that defining wealth creation is complex, though not impossible. Measuring progress is even harder. There are still conceptual debates about how to measure productivity in the public sector and health in particular, partly because we lack comprehensive outcome measures. Attributing overall productivity gains to individual innovations is therefore a very hard task. There is also no easy way to count the number of jobs that contribute to the wider health economy, let alone those added in a particular period or locality by e.g. an AHSN. When I recently requested the number of jobs related to healthcare in North West London from the Office of National Statistics (ONS) it became quickly apparent that this would not be possible. We also do not have an inventory of patents across our health economy neither do we have a complete picture on the take up of NICE guidance, particularly in primary care.

All of this highlights that while we should absolutely make an effort to understand the drivers and relative importance of the channels through which health and healthcare interact with economic prosperity, measuring change and assigning additionality is very difficult. NHS England is about to commission some work in this space to measure the success of AHSNs in creating wealth. This is welcome, but I hope this note shows the complexity of the issue. Combined measures, such as measuring the uptake of best practice for individual AHSN projects may be a better starting point as it captures both health and wealth.

Towards a unified public narrative – Health is Wealth

Last but certainly not least, a plea to move away from the somehow artificial distinction between health and wealth. I hope that this note has highlighted the interconnectivity between the two and presenting it as independent objectives risks disenfranchising large parts of the public but also confuses strategies. Of course, it may be desirable to entice industry to settle in London or the UK more widely even if their products are insufficiently used by the NHS given the wider benefits from tax and employment. However, it is unlikely to be a successful long-term strategy given the synergetic relationships and the ecosystem required to deliver them.