Abstract
The pre‐budget report forecast a reduction in public spending growth from 1.9% a year to 1.1% from 2011–2012, a reduction of £37 billion in planned spending.
So far the NHS has been saved from some of the worst effects of the economic downturn, having been able to accumulate a surplus and being given a more favourable financial settlement than most of the rest of the government. Primary Care Trusts (PCTs) will receive an average of an additional 5.5% in each of the next two financial years. For the providers of healthcare the uplift in the money available is 1.7% and very significant efficiency savings are required. These are likely to increase from the current 3% to at least 5% in 2010–2011. The difference between the increase for PCTs and that for providers is for local and national policy priorities, so there is some scope for services to be improved or developed.
There are a number of areas of concern that mean that this position may be less favourable than it appears. Since the pre‐budget report the situation has worsened and additional money has had to be found to support the banks. The government estimate that debt payments will go up by almost 8% during the next spending review as a result of higher levels of borrowing. This makes the longer‐term position look significantly worse than the next two years. In addition, a falling pound and increases in employers' national insurance in 2011 will add to providers' costs.
The financial situation will also have a significant impact on the environment in which the NHS operates. Local government has seen the value of its investments fall and has received a significantly less generous settlement and there is a concern that reductions in spending on social care will put additional pressures on the NHS. The charitable sector is already feeling the effects of the downturn. This is against a background of increasing demand which may itself be fed by the economic downturn, particularly in mental health conditions.
How should the NHS respond to these unprecedented challenges? Clearly it will need to redouble its efforts to improve efficiency. The pre‐budget report says that the very large efficiency savings will come from improvements in operational efficiency, for example, more efficient procurement, the centralization of back‐office services and improvements in the use of assets. There is limited confidence in the NHS that the assumptions on which this is based are secure. While there are undoubtedly savings to be made in back‐office, administrative and non‐clinical areas, it is likely that very much more significant efficiency savings need to be achieved by improving clinical services: reducing waste, eliminating rework and making sure that patients follow the most efficient pathway. In many cases it may be possible to improve quality and reduce costs and this should certainly be the aim. Turning the savings into real cash that can be re-deployed elsewhere is often more challenging.
Many efficiency savings in the past have been achieved by simply doing existing activity more cheaply than before. The most effective, however, are those where there is a major redesign of how the work is done. For example, day surgery, minimally invasive surgery, the shift of diabetic care from hospital to community. These require the combination of clinical and managerial expertise and the ability to think beyond simply improving the current method.
There are a number of significant obstacles to this. The short‐term pressures to make savings and the way that budgets and responsibilities still operate in silos in many parts of the system mean that solutions which shift work between organizations or even departments are difficult to achieve. High levels of trust and transparency are necessary to do this and an environment in which organizations are feeling financially threatened is not conducive to the development and maintenance of trust. It will also be more difficult to find the double running costs that are often required to facilitate this type of change.
The paralysis of the banking sector and the collapse in the value of land means combined with a squeeze in public sector capital means that organizations with plans for capital expenditure that may be necessary to achieve major efficiency improvements are likely to find it hard to acquire funding.
As well as improving the efficiency of how healthcare is delivered it is likely that the NHS will need to take a much harder look at allocative efficiency – how money is spent between different programs. In the last few years there has been a tendency to solve difficult problems of conflicting priorities by relying on the record growth in NHS expenditure. As this comes to an end PCTs and trusts will need to deal with some difficult choices about how to allocate money and which services to stop or reduce if it is necessary to prioritize new areas of spending. Beyond a few examples of ineffective or low priority treatment the NHS traditionally has been very poor at deciding to stop providing. This has meant that there has been an in-built bias against new approaches and may partly explain the NHS's poor record in the adoption of new technology. The methods to make these decisions and the public legitimacy required to support them are both in need of urgent work.
At the same time there will be pressure for the NHS to play its part in economic regeneration. This may be difficult to reconcile with some of the other imperatives and constraints. Developing a skilled workforce and improved infrastructure will have benefits but only if it is affordable.
There are two particular areas for concern. Firstly, that the tightening financial environment leads to major disinvestment from efforts in health improvement and secondly, the service adopts the previous approach to tightening finances which too often resulted in salami slice cuts which reduced quality. Keeping a firm fix on the long‐term goals of the system will be important.
Footnotes
DECLARATIONS
Footnotes
Acknowledgements
None