Pay caps on nurses in the UK

I’m finishing my time in the UK today and head back home tomorrow.  The British Society for Rheumatology 2017 conference was interesting, on the news the key headlines were pay for National Health Service employees, nurses in particular.

Due to budget shortfalls, the NHS froze nurse pay between 2010 and 2012.  Beginning in 2012, pay raises resumed but were capped at 1% per year.  Because of these austerity measures, the Royal College of Nursing claims that real wages–i.e., the differences between nominal wage increases and increases to the cost of living–for nurses have actually fallen by 14%.

Economists would predict that when prices or wages fall below market rate, there will be shortages.  Sure enough, that is the case in the UK.  There is an estimated 50,000 person labor shortfall for NHS, equivalent to 6% of the current NHS workforce.

The Labor party is trying to address this situation. They are campaigning on lifting the the 1% cap on nurse wages and instituting mandatory staffing minimums.  The cost of this proposal, however, would be £350m a year (or £500m if increases to physician wages were also included).

This has lead some commentators to claim that the NHS reimbursement system is “complicated, unfair and frankly absurd.”

While I would like to claim that nothing of this sort happens in the U.S., that is not entirely true.  Medicare tried to artificially hold down physician reimbursement using the sustainable growth rate (SGR) policy.  The physicians, however, were too politically powerful for this type of budget cuts and the SGR was reversed through the annual Doc Fix every year until the SGR was repealed in 2015.

Single payer systems may seem good to those who focus on equality, but quality of care can suffer sue to staffing and treatment shortages due to centralized price setting and budget pressures.  For those interested in moving to a single payer system, take the NHS example as a cautionary tale.