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Bridging the spending gap in the NHS

Sir David Nicholson has recently announced that, if NHS spending is not increased in real terms over the next few years, the NHS will have a spending gap of some £30bn by 2020/21.  The system has now embarked on a wide debate about the action that is required in response to this challenge.

The language of this debate is important. There is already talk of the need for significant savings, hospital closures and reductions in service in response to a crisis of demand. There have been calls in the press (and from a minority of GPs) for the introduction of charges for services.

The system does indeed face a major challenge, as do health systems across the world.  But it is not a new challenge.  And it is one that can be a stimulant to imaginative change and positive development instead of cost cutting and service retrenchment.

Growth in demand for healthcare (‘medical inflation’) has outstripped general inflation for decades.  Since its inception, the NHS has seen its revenues grow on average by some 4% in real terms year on year (Nuffield Trust: A decade of austerity. Dec 2012).  In the 1990s the debate reached a critical political stage – could a system such as the NHS meet the needs of the country or did it need fundamental change and privatisation?  The Blair Government decided to test the first of these propositions, and embarked on a surge of public expenditure on the NHS.   The proportion of GDP spent on the healthcare in the UK has since risen from some 6% to circa 10%, and in cash terms from some £37b in 1997 to over £110bn in 2012.  (By comparison, Germany spend 11.3% of GDP on health, France 11.6%, Italy 9.2%, and Australia 8.9%.   The US is an extreme outlier at 17.7%.  OECD 2013)

The NHS has achieved much in response to this major investment.  Waiting times for elective surgery and outpatient investigations have shrunk dramatically and are now comparable to any public system. Accident and emergency departments are still maintaining the new standards for speed of assessment and treatment.  A recent analysis has concluded that productivity increased along with the investment.

The period of dramatic growth in spending has come to an abrupt end.  Spending controls have been rigorously introduced in the past few years – most noticeably through wage restraint and the ‘QIPP’ programme aimed at achieving £15bn savings across the system by 2015.

The ‘QIPP’ programme has become synonymous with cost cutting, which is unfortunate given that at its inception it was intended to be a programme of improving efficiency through ‘quality, innovation, productivity, and prevention’.  NHS England are maintaining a 4% annual ‘efficiency’ target.  In 2014/15 this will translate to an overall reduction in tariff prices of 1.5% for hospitals and 1.8% for mental health and community providers (equating to 4% efficiency gains after allowing for inflation of just over 2%).  Service provider managers are continually challenged to demonstrate that their cost improvement plans (CIPs) will deliver the 4% savings year on year.  This is a key factor in the assessment of provider organisations by Monitor and the Trust Development Authority.  It is a dispiriting agenda for those who work in the NHS.

Funding for the NHS will not be reduced in real terms.  The real challenge is that demand is growing faster than those resources.  Health inflation will continue – variously estimated at between 4% and 8% in real terms per annum.  And of course a growth in share of GDP spending does not mean much when GDP was less in 2013 than it was in 2007.  The system should not translate this into a programme that focuses on cash releasing cost reduction programmes.  Instead the system should focus on using its resources ever more efficiently and effectively, creating more capacity with existing resources, finding new ways to deliver services that halt disease when it is cheaper to do so rather than waiting for the high costs of managing advanced disease and attendant complications.

This should be a stimulating and positive agenda.  The NHS is full of imaginative and inventive people.  Clinicians and managers across the system are a highly expert and able workforce.  They are demotivated by corporate challenges to make savings and reduce costs. They are highly motivated by improving the care that they can give to their patients.  Given the right incentives and encourage they will rise to the challenge of and expanding the capacity of their service within existing resources.

There are, of course, many complicating factors.  Improving care means changing the way things are done, stopping those services which are less efficient than the alternatives, moving staff from one work pattern and environment to another, retraining them.  Most obviously this means reducing the spend on some hospital based services (whether out patients or wards beds) and moving the care of the patients back to the community or domestic setting.  It also means enabling patients to be more self sufficient in the management of their long term conditions, improving compliance with treatment to prevent exacerbations and complications, greater use of remote monitoring and communication technologies, more team work and less duplication of effort.  It means concentrating expensive hospital services into fewer institutions, creating higher levels of expertise and enabling the 24/7 medical cover that modern medicine demands.

There are hurdles to be overcome – and they will be overcome only by ingenuity and creativity.  There are known barriers to these changes.  One of the most obvious is that at present when one part of the system increases expenditure to improve things (such as community care) it does not benefit from the consequential reduced spend in another (such as the hospital), which means that neither are incentivised to make the necessary change. This fundamental block has to be addressed rapidly.  A second problem is that the general public will not tolerate services being withdrawn or closed on the promise of something better in the future – they need to see the new services come into place before the old are dismantled.  This means some investment in double running services for the short term.  There is as yet no convincing objective evidence that providing more care in a community setting is more cost effective and increases capacity with existing resources.  The estate from which so much care is provided, particularly general practice, is woefully inadequate to the task – wrong place, wrong size, wrong shape.  The NHS owns tracts of land which could be released for sale and the money used to prime the redevelopment that is necessary – but the proceeds of sale revert either to the Treasury, or to a Foundation Trust, not to the local system as a whole.

New thinking and creativity must take the place of cost cutting and retrenchment.  Financial structures and boundaries must be re-thought to create the return on investment incentives that will drive change.  The target must be creation of new capacity with existing resources, not continuing to provide current capacity with reduced resources.

We must motivate and challenge our colleagues across the system to raise their eyes to the future.  We must give freedom of action across localities to vire money and budgets across organisational boundaries.  We must ensure that the benefits from investment in change accrue to those who bear the costs of the investment.  We must talk of growing capacity in the right places on the basis of continued levels of spend on the system.  Only through this agenda will we create the conditions in which the energy and ingenuity which are our best characteristics will be brought fully to the fore.