The Cost of NHS Reorganisation and Why it Matters

In the previous article the NHS reorganisation taking place over 2025/2026 was discussed. This will see 50% reductions in staffing budgets for Integrated Care Boards (ICBs), with Leicestershire ICB amalgamating with Northamptonshire ICB. This will lead to removal of a local focus as the ICB then oversees two counties. Some would argue this as a good move as it reduces management and ‘saves’ money. However, in this piece the history of NHS organisation since 1974 is explored and set in its political and economic context, which suggests that wholesale organisational change in the NHS rarely shows improvements and happens all too frequently.

The reason it is important to highlight these issues is because successive governments have pushed through major reforms as though they are rescuing the NHS from the mistakes of the previous government. It shows them as proactive and actively addressing an area that the public overwhelmingly agree as one of their major concerns, along with the cost of living. In reality the opposite is true and such frequent major disruption of the NHS simply leads to loss of lives and a waste of a finite resource.

The 1974 reorganisation, the first major structural overhaul for many years under the premiership of Edward Heath, reorganised the NHS in order to bring together hospital, community, and family doctor services under one structure. Three tiers were established,

Regional Health Authorities (RHAs), Area Health Authorities (AHAs) and District Management Teams. The system quickly became overly bureaucratic with too many layers.

1982 Reorganisation under the government of Margaret Thatcher, set about removal of Area Health Authorities to reduce bureaucracy. Hence the structure became The Department of Health, Regional Health Authorities, District Health Authorities and Provider organisations. The aim being to simplify management and reduce administrative costs.

In 1992 the Thatcher Government introduced the NHS internal market. The key concept of which was separation between Purchasers (health authorities and GP fundholders) and Providers (hospital trusts). The key developments included the creation of NHS Trusts, GP fundholding budgets and competition between providers.

Under Tony Blair’s leadership, between 1997–2002 labour reforms led to softening of the internal market; however, commissioning remained. Key developments included creation of Primary Care Groups, later revised to Primary Care Trusts (PCTs) and regional oversight through Strategic Health Authorities (SHAs)

With a change in government in 2012 another major structural reform under David Cameron’s government introduced the Health and Social Care Act 2012, one of the largest reorganisations in NHS history. It abolished PCTs and SHAs, Created Clinical Commissioning Groups (CCGs), Created NHS England and expanded market competition rules.

By 2016 there was an integration policy shift under the guidance of NHS chief executive Simon Stevens. Under that change a five year forward view was established and Sustainability and Transformation Partnerships (STPs) and Integrated Care Systems (ICSs) were introduced. The purpose was to move away from competition toward collaboration between NHS organisations and local government.

The government of Boris Johnson introduced the Health and Care Act 2022, key changes of which abolished Clinical Commissioning Groups, created Integrated Care Boards (ICBs) to commission services and Created Integrated Care Partnerships (ICPs) involving councils. One such board was the Leicester, Leicestershire and Rutland Integrated Care Board (LLRICB).

The reforms since 1974 have the following historical pattern and over 50 years the NHS has cycled through four organisational models:

Almost every reform attempted to fix problems created by the previous reorganisation.

bureaucracy → simplification

central control → local autonomy

competition → integration.

The approximate cumulative cost of NHS structural reorganisations is between £3.7 billion – £5.3 billion (In today’s money this would be well over £10 billion.)

The 2012 reforms under Health Secretary Andrew Lansley are widely considered the most disruptive and costly. Major expenses included redundancy payments to thousands of managers, creation of new organisations, legal restructuring of contracts and IT and administrative changes.

The National Audit Office estimated the transition alone cost about £1.4 billion, while other analysts put the full system cost closer to £3 billion.

Reorganisations are expensive with costs usually arise from redundancy payments, re-hiring staff into new organisations, legal transfer of contracts, new IT and governance systems and rebranding and management restructuring. Many staff effectively lose jobs in one organisation and are rehired in another, creating large transition costs.

The NHS has been structurally reorganised roughly every 6–8 years for five decades, often before the previous system has fully settled. That is also true of the current reforms underway. ICBs were created in 2022 to simplify the system, yet by 2024–2025 they were already being downsized because they were seen as adding another management layer.

There is a very clear historical pattern, with the NHS being reorganised roughly every 6–8 years, regardless of whether the government is Conservative or Labour. Several structural forces inside the system drive this cycle.

The NHS is the largest public service in the UK, so governments often feel pressure to show they are “fixing” it. Major reforms are therefore used to demonstrate political action. Such as Margaret Thatcher introducing the internal market in 1990, Tony Blair creating Primary Care Trusts in the early 2000s, David Cameron introducing the major restructuring under the Health and Social Care Act 2012 and Boris Johnson creating Integrated Care Systems through the Health and Care Act 2022.

Each reform was presented as solving the system’s problems. However structural problems take years to appear. After a reform, it usually takes 5–7 years for the unintended consequences to emerge. Typical issues include, excessive bureaucracy, fragmentation of services, duplication of management and poor accountability.

When these problems become visible, the next government proposes another reorganisation. The NHS also has an inherent tension having to balance three competing models, central control, government demanding national oversight and accountability and local autonomy. Doctors and local systems want freedom to organise services, however market competition which some policymakers believe improves efficiency works against this, in truth, no structure can satisfy all three simultaneously. Reorganisations usually simply shift the balance between them.

Financial pressure also contributes to demands for structural change and often trigger reform.

For example, following the 2008 financial crisis, the coalition government introduced the large reforms led by Andrew Lansley. Current financial pressures are now leading to cuts within organisations like Leicester, Leicestershire and Rutland Integrated Care Board. When budgets tighten, governments often try structural solutions to financial problems.

Such major disruption also leads to a loss of organisational memory because the NHS reorganises frequently and institutions disappear, experienced managers leave and systems have to be rebuilt. This loss of organisational memory sometimes creates the conditions for the next reform.

Many experts argue the NHS would benefit from longer periods without structural change, focusing instead on workforce, funding, and service improvement. Even The King’s Fund and The Nuffield Trust have repeatedly warned that constant restructuring can disrupt services without improving outcomes.

Sources:

• https://www.bmj.com/content/362/bmj.k3108.full
• https://publications.parliament.uk/pa/cm201012/cmselect/cmhealth/1499/1499we06.htm?
• https://www.standard.co.uk/news/uk/nhs-reform-set-to-cost-ps3-4bn-6372888.html?
• https://www.kingsfund.org.uk/insight-and-analysis/long-reads/nhs-myth-busters?
• https://www.bmj.com/content/362/bmj.k3109?
• https://www.bmj.com/content/362/bmj.k3108?
• https://hansard.parliament.uk/Commons/2012-01-10/debates/12011048000019/NHSReorganisationCost?