03 November 2006
For years, the NHS has been living off the fat of the land. But now, lean times are almost upon it, and managers need to look for far greater efficiency savings, says Noel Plumridge
'Behold, there come seven years of great plenty throughout all the land of Egypt. And there shall arise after them seven years of famine; and all the plenty shall be forgotten in the land of Egypt; and the famine shall consume the land.'
Thus, in the Bible, Joseph interprets the pharaoh's mysterious dream of thin cattle eating fat cattle and thin ears of corn devouring full ears. Confident central government, prompt strategic planning initiatives and strong project management then enable Egypt to lay up stores of grain in readiness for the famine ahead. You can read the full story in Genesis 41 and 42.
These early years of the twenty-first century have been times of relative affluence for the health sector in England. The 2002 Budget allowed for an average 7.4% real-terms funding increase each year from 2003/04 to 2007/08, a growth level unprecedented in modern times and the envy of other government spending departments.
Health has had five years of plenty. Yet the story of NHS finance has also been one of seemingly incurable deficits, typically running at around 0.5% of the total budget, irrespective of how big that budget becomes. Getting back into the black remains the major preoccupation for many NHS organisations.
'Where did all the money go?' has been a commonly heard question. But now a second, and perhaps more challenging, question is being whispered within the NHS finance community. How on earth will the health service cope in 2008/09 and after, when annual cash uplifts of 10% or so have become a distant memory?
Back in Egypt, the corn stores were ready and waiting when the famine years began. We, however, have gobbled up all our revenue funding as we've gone along, and returning a few hundred million pounds worth of unspent capital to the Treasury isn't quite the same as laying down a reserve.
At the CIPFA health conference this October, Richard Douglas, long-serving NHS finance director, compared the health sector's situation to that of slightly overweight people who are advised by their doctors to diet. Eat less, exercise more.
It sounds easy, but many overweight people stay heavy despite their best intentions. Do NHS organisations have the willpower to stick to such a regime? And what support, what strategies, might an entity accustomed to consuming 9% of GDP – and to steady expansion – need for success?
Self-discipline and willpower, otherwise known as sound financial management, will help. There is ample evidence from recent financial crises in the NHS that breakdowns of budgetary control, establishment control and accountability processes, combined with boards and audit committees unwilling or ill-equipped to challenge, mark the road to deficit.
The Audit Commission's Learning the lessons from financial failure in the NHS, published in July, spotlights these patterns and the way their mirror image – strong information, strong accountability, strong board leadership – often forms the foundation of successful recovery.
But good discipline will go only so far. The drivers of higher spending on health care are real. One is pay inflation. Chancellor Gordon Brown's aspiration of a 2% pay ceiling across the public sector might prove difficult to impose in health, where there is a well-established locum and agency sector (allowing dissatisfied staff to sidestep inflation controls), competition from a growing independent health sector and significant leakage of trained staff into other industries.
Another is demand. Across western Europe the desire for, and expectations of, health care continue to rise. England is now spending around 9% of GDP on health care, but in other major economies the proportion is between 11% and 13%.
The third driver is the perennial combination of demographics and science: an ageing population makes greater demands on our health care system, while technology and the pharmaceutical industry never stand still.
What, then, are NHS managers to do? In broad terms, there are three answers. Introduce more resources, reduce demand and make better use of our existing resources. Let's examine each in turn.
If the initial challenge is smaller real-terms increases in government money, might there be scope for substituting other sources of funding? After all, the pan-European vista suggests society at large is willing to commit an even greater share of national wealth to health care. The tension in Britain is between this willingness and reluctance to increase taxation, with the political mantra of an NHS free at the point of care tying all parties' hands. Perhaps a wider role for the private sector or an increased reliance on the grey area of co-payment might ease the NHS's pain.
But the former seems unlikely at present. The rapid creation of thriving private sector provision, in the form of treatment centres run by substantial multinationals and funded by NHS commissioners, has had two largely unforeseen side effects. It has crushed the market for self-funded private provision by removing the incentive to 'queue jump'. When NHS waits are as short as they have become in England, why bother? And it has shaken the old-established private providers, who find themselves unable to match the prices of the new market entrants.
Co-payments (the 'income generation' much beloved of the 1990s NHS) remain marginal and often controversial. Increasing revenue from hospital car parking, patient televisions and telephones and the like is time-consuming and deeply unpopular.
Other potential sources of new money lie close at hand in pooling arrangements with social care budgets. There is a warning here for social care. When sharing a picnic, beware of the guest with a big appetite and recently reduced income. We might well see attempts to raid budget pools, or, less blatantly, to shift the burden of cost to social care organisations.
What then of reducing demand, otherwise known as 'demand management'? At one end of the spectrum, this implies an explicit decision to discontinue a particular form of care, on the grounds that NHS resources have higher priorities. Tattoo removal, varicose vein surgery and in-vitro fertilisation are common examples of treatments that primary care trusts have chosen not to fund. In reality, however, the decision to disinvest in a specific treatment is often contentious, based on values that are open to challenge (so who says IVF is low priority and why?) and – as PCTs that initially chose not to fund Herceptin quickly learnt – prone to being undone by higher authorities.
Midway along the spectrum lies referral management, the notion that clinical thresholds can be established for treatments or care services, defining what the NHS should and should not fund. For instance, defining when access to community-based physiotherapy is acceptable, and for how many sessions. It is commonly associated with referral management 'centres' and a prominent role for GPs in vetting and sometimes redirecting 'inappropriate' referrals.
The reality of referral management is, however, more complex. Its sustaining belief, that we save money by switching patients from hospitals to primary care wherever possible, remains fragile. GPs are expensive, and hospitals often find their capacity is quickly refilled. Moreover, patients offered choice often choose the 'inappropriate'. Attendances at accident and emergency departments, for instance, rise inexorably in spite of the existence of community-based alternatives.
Finally, there is genuine demand management based on successful disease prevention and effective self-management of long-term illness. The NHS has made progress in both areas, and initiatives are plentiful. Smoking cessation, anti-binge drinking, five portions of fruit and vegetables a day, the list continues to grow. And 'expert patient' programmes have demonstrated how adept well-informed and well-motivated patients can be in delaying the progress of diseases such as diabetes, respiratory illness and hypertension.
But if public health improvement is the key to long-term success, reliance on it for immediate gain would be rash. There have been spectacular successes, particularly when using the same sophisticated targeting of social groups that the advertising industry employs; but traditional finger-wagging techniques are ineffective and often counter-productive. (This summer's images of parents pushing pies through school railings to their Jamie Olivered children will stay in the memory rather longer than the average anti-smoking campaign.) And even the best campaigns take years to translate into measurable reductions in demand for hospital care.
So the third option, making better use of our existing resources, is probably the most fruitful approach for 2008/09. And the potential savings from better productivity and tackling the current huge variations in the cost of health provision are immense. Health minister Andy Burnham recently suggested that £2.2bn could be saved each year if NHS trusts were to adopt best practice – that is, the productivity and efficiency of the top 25% of organisations – in each of the new 'better care, better value' indicators.
For instance, some trusts admit around 10% of patients the night before a planned operation, but for others the rate is over 60%. Early admission is typically about administrative practice, not clinical need. Nationally, the estimated savings potential from redesign is a cool £510m a year. At the other end of a patient stay, speeding the process so patients are discharged when ready, instead of when the system can cope, offers a further potential £975m.
This renewed focus on eliminating unnecessary variation reflects the underpinning of the service improvement revolution (formerly known as modernisation) that has been sweeping the health sector with hard measures and financial targets. Indicators are presented trust by trust, allowing detailed probing by managers and commissioners alike.
Thus the Barking, Havering and Redbridge Hospital Trust, with its 14.2% potential reduction in average length of stay, has an estimated scope for savings of £14.5m. If the University Hospitals of Leicester Trust could reduce its preoperative bed days by its potential 30.2%, £11.5m would be released.
Delivering quality and value: focus on productivity and efficiency, published by the NHS Institute for Innovation and Improvement earlier this year, is an excellent short guide to this science and is already becoming widely used.
Achieving these impressive potential gains will not, however, be easy. Prompt discharge, for instance, depends upon slick co-ordination, and sometimes on available capacity in other services. To save its £14.5m, the Barking trust will need not just to discharge its patients earlier, but also then to keep its beds empty and to cut its overheads in proportion. And NHS finance professionals have been slow to adopt this approach: a disappointing proportion of 2006/07 cost improvement targets appear to have been set on a crude pro rata basis.
Perhaps the biggest single challenge, however, lies in what the NHS delicately calls 'clinician engagement'. The doctors, nurses and therapists who comprise the majority of the NHS workforce have ample scope for blocking these routes to efficiency, especially if they perceive a threat to their livelihoods. Recent cost cutting by NHS organisations, in response to heavy-handed performance management, is prompting a return to a bunker mentality. Managers implementing change on the scale that is needed will require not just practical skills but also the ability to persuade.
The evidence and tools now becoming available help enormously, but ultimately 'people skills' will be the key to success.
Noel Plumridge was a manager with the NHS Modernisation Agency from 2001 to 2003. He spent many years as an NHS finance director
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