Can the NHS get off the cost escalator?

Feb 5, 2015

Since the start of 2015, the NHS has been in the news constantly. While the headlines in January focused on A&E performance, the financial pressures facing the service are now returning to centre stage. And on this front the latest report by the Public Accounts Committee makes difficult reading for all of the political parties, who are committed to keeping the NHS in a similar form to the system that currently exists.

Across the NHS the overall surplus fell from £2.1 billion in 2012-13 to £722 million in 2013-14. The percentage of NHS Trusts and Foundation Trusts in deficit increased from 1 in 10 to 1 in four over the same period. Margaret Hodge, the Committee’s chair, soberly notes that of all the areas of public spending “the fragility of the NHS finances causes me greatest concern”.

The Public Accounts Committee recognises that the best hope for improvement lies in making better use of primary and community services to take pressure of hospitals. Yet investing in different services to reduce demand means shifting investment away from hospitals. While NHS England and Monitor sought to move funding away from hospital services in their proposals to reduce the NHS tariff, the national prices that determine a lot of hospital income, hospitals vetoed the new arrangements arguing that further cuts would threaten patient care. On one hand the system is trying to change, on the other is desperately trying to hold things together. The NHS is stuck in a classic catch 22.

Two recent episodes involving the private sector also demonstrate what is going wrong. The decision by Circle to pull out of its contract to manage Hinchingbrooke suggests the challenge facing the parties on keeping smaller, often popular, hospitals open in this era of tight budgets.  More importantly the decision by Bupa to pull out of a contract to coordinate musculoskeletal services in Surrey neatly illustrates the nature of the system gridlock. Here an attempt to provide higher quality care in the community was effectively ended because of the knock on effect on the finances of a local NHS hospital. When it comes to the crunch the interests of the provider still trump the interest of the patient.

Many are now signed up to the idea of a Transformation Fund to secure both upfront investment and allow for “double running” of services. Of course the £2 billion announced in the Autumn Statement was presented as a “down payment on reform” to break the gridlock in the system. Yet this money is at risk of getting lost in the system. Now that the Chancellor has loosened the Treasury’s purse strings different factions in the NHS are desperate to get their slice. Granting the NHS more funding has only whetted its appetite. As one NHS managerwarned last year, if the extra £2 billion is used to simply ease the pressure on hospital balance sheets it will be a missed opportunity.

Of course much of the investment put into the NHS between 2000 and 2010 went towards higher pay and prices. What guarantees will there be that any transformation funds can be put to better effect this time? Already budgets set aside for innovation have been raided to plug gaps and prop up A&E. After years of pay restraint there will be overwhelming pressure to increase staff salaries in the next Parliament, regardless of who makes up the Government, particularly if there is money sloshing around in the system.

The fixation with resourcing a Transformation Fund and the £8 billion price tag attached to the Five Year Forward View also neglect the other challenges when it comes to implementing change in the system. Not least the relative absence of change management skills, but also the need to loosen other barriers such as financial incentives in the tariff system, professional cultures, organisational silos etc. Also the focus on a centrally resourced Transformation Fund overlooks the potential role for private sector investment in new models of care. New joint ventures and other projects can help share risk and bring in much needed management skills when it comes to changing business models.  In times gone by the NHS embraced private finance to modernise hospital infrastructure through the PFI scheme (of course with varying degrees of success). More recently the NHS has proved more reluctant to cooperate with the private sector. The resistance to transferring patients experiencing long waits for elective care to the private sector is illustrative. Yet if the NHS cannot find new ways to work with other sectors it will be stuck on the same cost escalator for a long time to come.


Thomas Cawston

Thomas Cawston
Head of Health, 2014-15 Read Full Bio

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