Bridge over troubled waters

21 Oct 10
It was steady as she goes at the NHS - until the white paper came along. As the health service sails into stormy waters, it's all hands on deck at the Department of Health, finds Noel Plumridge

By Noel Plumridge

21 October 2010

It was steady as she goes at the NHS – until the white paper came along. As the health service sails into stormy waters, it’s all hands on deck at the Department of Health, finds Noel Plumridge

The health brief could potentially have been one of the quieter roles in the coalition Cabinet. The NHS is financially healthy after years of operating deficits and its future seemed  secure.

As well as high-profile assurances on the ring-fencing of health funding, David Cameron had stressed in his election campaign that the service would be safe in Conservative hands. And the scale of the savings the NHS needed to find, widely understood to be between £15bn and £20bn, was acknowledged and ­grudgingly seen as achievable.

The service achieved a net surplus of £1.5bn in 2009/10, and this month the Audit Commission reported that ­‘auditors’ assessments show clear signs of sustained improvement in financial management in most NHS trusts and primary care trusts’.

Scope, one might have thought, for simply getting on with the task in hand.

But that isn’t Health Secretary Andrew Lansley’s way. He began in July by announcing the abolition of not just the ten strategic health authorities in England, but the entire tier of 152 primary care trusts. All will disappear by 2013, although senior staff might not hang around that long. It’s a parallel ‘bonfire of the quangos’, and one unforeseen in the ­coalition government agreement only a month before.

Meanwhile, the white paper Equity and excellence – Liberating the NHS, published in July, makes plain the scale of the intended revolution. The £80bn NHS commissioning budget is to be handed to GPs to manage, whether they like it or not, leaving ordinary doctors in the line of fire as the savings targets translate into service cuts and closures. There will be a new resource allocation formula to decide on funds flow to the GPs. Hospitals are to be encouraged to form ‘social enterprises’ outside public ownership, a move immediately heralded by some as the denationalisation of health care. It echoed the suggestion by Steve Bundred, chair of foundation trust regulator ­Monitor, that such trusts’ assets should not be on the public sector balance sheet.

And there’s plenty more.

On the day after the white paper was published, NHS chief executive Sir David Nicholson pledged to establish what he called a ‘bridging function’ to guide the NHS from its present form into the future. ‘The bridge’, Nicholson states, ‘will ensure that we maintain a strong grip on quality, finance, operations and QIPP [the NHS quality, innovation, productivity and prevention initiative].’

David Flory, senior finance leader at the Department of Health, has joined ­Nicholson on the ‘bridge’, now as deputy chief executive and also perhaps as a visible reminder of the centrality of finance.

For the white paper strategy is a high risk one, not least because it imperils the all-important spending reductions. If the NHS fails to find the ­£15bn–£20bn ­savings, it will have no resources to pay for inevitably rising costs.

The Institute for Fiscal Studies ­estimates the cost of population growth will be £1.1bn–£1.4bn per year between now and 2017, while medical and scientific advances are widely acknowledged to amount to around 1.5% of health ­spending per year, about £1.5bn.

Nigel Edwards, acting chief executive of the NHS Confederation, pointedly observes that if the structural reforms saved a net £1bn – which seems optimistic, with the cost of redundancies and early retirements likely to exceed that sum – that would still leave another £19bn to find. And, says the confederation, with ­council-funded social care undergoing deep cuts, the NHS faces ‘a potent ­cocktail of financial pressures’.

The Treasury is nervous. So, as became apparent at October’s Conservative ­conference, are Lansley’s party colleagues. The proposals are also encountering heavy opposition from the doctors, one entrenched professional group that even Margaret Thatcher was wary of tackling.

Richard Vautrey, deputy chair of the British Medical Association GPs committee, considers the intended pace of change ‘foolhardy’. Behind the scenes, the GPs, on whom the secretary of state’s proposals depend, are understood to be brushing aside Lansley’s honeyed words and pursuing hard cash – lots of it – as the contractual price for taking on a large burden of public accountability.  

The BMA can, when convenient, be ­demonised as just another trade union seeking the best interests of its members. So, too, can the Royal College of Nursing, whose chief executive and general ­secretary Peter Carter warns of the ­instability the changes might bring.

But the BMA is a famously effective trade union. Besides, alienating the majority of the NHS’s 1.2 million staff carries a plain political risk. And the Royal ­College of General Practitioners has also voiced its disquiet.

But why are these changes being made, people are asking. There are even mutterings about a ‘Plan B’ if it all becomes too difficult.

From a financial perspective, one of the crucial issues is risk: the real concern that financial control within the budget of a major department of state could be shaken. How will GPs – the management of whom has sometimes been likened to herding cats – be held to account for some £80bn of taxpayers’ funds? Will it be ­possible to enforce GP accountability?  

Bob Alexander, director of NHS finance at the DoH, is a former trust and strategic health authority finance ­director with immense experience. He defends the move to GP consortiums and insists that the financial controls will be robust. ‘The white paper makes it absolutely clear that the taxpayer will be protected,’ he tells Public Finance. The consortiums will be statutory ­public bodies and their governance arrangements will be ­assessed, he adds, although ‘we’re not yet prescribing exactly how’. But he says they will be accountable to the commissioning board for their management of resources, and there will be an intervention ­regime for any judged to be failing.

‘We will not hesitate to intervene to maintain financial control. But we will also hold to the principle of putting GPs in the forefront of commissioning. As long as GPs hold the gatekeeper role for secondary care, these changes must be intellectually coherent.’

The consortiums don’t yet exist, though, and there might well be a period when they are still embryonic but the old regime – PCTs in particular – is crumbling. Two and a half years is a long time to hold a condemned organisation together.

The highly regarded King’s Fund ­questions the wisdom of this structural change. Its response to the white paper says: ‘The coalition agreement published in May stated that there would be no further restructuring of the NHS, yet this is precisely what is happening. Large cuts in management costs and the abolition of primary care trusts and strategic health authorities will make it difficult to ensure there is effective change management in place to support implementation of those proposals.’

The think-tank concludes bluntly that: ‘The aims of the government would be better pursued by building on existing arrangements.’

The NHS Confederation, which claims to represent 95% of NHS organisations, is also critical. ‘GP [consortiums] do not appear to be clearly accountable to ­patients and the public,’ it observes. ‘We need clarification on their relationships with member practices, the NHS Commissioning Board and health and wellbeing boards. GPs need to be… accountable to the populations and the wider health economies that they serve.’

The sense of financial exposure might be less were it not for the surprise abolition of the Audit Commission, announced by Local Government Secretary Eric Pickles in August. The decision seems to have been driven by local authority interests, with little regard to broader public finance.  According to Pickles, the commission had ‘lost its way’ and become ‘a creature of the Whitehall state’. Maybe – but has the work of the commission in scrutinising the health care system been fully appreciated, or even understood? Its solid independent reports on the reliability of the coding that drives the payment- by-results system, for instance, have been invaluable.

Would not a similar scrutiny of the soundness of the new financial arrangements – and of the stability of the NHS during the transition period – offer real assurance during a period of change?

Alexander concedes the ­announcement in August was ‘perhaps inconvenient timing for the NHS’. But he is adamant that it was ‘far better to have done it when they did, considering where we are in designing the changes needed for system transition and beyond’.  He adds: ‘Health organisations aren’t the same as autonomous local authorities. We’re an extended family with defined constitutional relationships. Our priority will be ensuring proper audit for the new GP consortiums, and ensuring existing audit arrangements aren’t put at risk.’

Switching attention to the ‘provider’ side of the NHS – the hospitals, clinics, community teams and primary care centres that constitute most peoples’ understanding of the health system – what might the future hold?  Does the move from ‘a level playing field’ to ‘any willing provider’ amount to the covert privatisation the government is accused of promoting?

And what of the transition to ‘social ­enterprise’, a term many are using but fewer appear to fully understand?

The King’s Fund offers a guarded ­welcome, both to employee-owned organisations and to the concept of ‘any willing provider’ as a lever for innovation. It points, however, to the complexities of forcing some NHS trusts into the foundation trust regime, highlighting London hospitals with longstanding performance and financial challenges. The King’s Fund also adds a warning that the ­destabilisation arising from large-scale restructuring will get in the way.

But what exactly does ‘any willing ­provider’ mean? Alexander explains that on the provider side, the NHS will become more akin to a ‘brand’.  ‘Rather than focusing on NHS organisations, we’ll recognise providers of NHS services. What makes them NHS services? The combination of being commissioned by the NHS and operating in accordance with the NHS Constitution,’ he says. ‘Why would it matter whether a provider is a social enterprise or from the independent or the voluntary sector?,’ he asks.

‘We should commission from any willing provider, within a regulatory framework, and allow them to stand or fall. You can play on the pitch as long as you’re good enough and that will be defined by the licence to operate issued by the ­regulatory bodies.’

So the meaning of ‘the NHS is safe’ appears to be defined in terms of a funding principle – ‘free at the point of use’ – rather than large-scale direct provision. Whether the independent sector is ­genuinely waiting in the wings, ready to snap up NHS contracts, is a matter of conjecture. The large firms that invested heavily in ‘treatment centres’ over the past decade appear less enthusiastic now that profit margins are falling and will probably fall further. And – as the recent attempt by NHS East of England to off­load Hinchingbrooke Hospital in Huntingdon to the commercial sector ­reveals – would-be ­bidders are cautious.

Perhaps, though, social enterprise is a stalking horse for the independent sector. Does Lansley’s vision of NHS foundation trusts becoming ‘the largest social enterprise sector in the world’ amount to a route to privatisation? John Lewis is being widely cited as an attractive model for employee-led health care provision, yet it’s hard to see where staff discounts and dividends belong in a world of ­surgery and medicine.

It’s speculation, and Alexander advises close scrutiny of the exact corporate ­arrangements. ‘More social enterprises may be employee-managed models,’ he says, ‘but you need to consider the detail of the legal form of the organisation.’

For there is no standard model. Indeed, on one issue, there is increasing tension between the DoH and those promoting social enterprises. That issue is whether employees will have access to the NHS pension scheme.

With all this going on, is the £20bn ­savings target still achievable? Both the NHS Confederation and the King’s Fund view the transition period as carrying the greatest risk. NHS Confederation members ‘believe it will be exceptionally difficult to deliver major structural change and make £20bn of efficiency changes at the same time’. They see ‘potential for failures in the quality of patient care and financial control’ – something highlighted by Basildon University Hospital, which faces ‘significant reductions in activity’ following a financial crisis at South West Essex PCT.

If that’s the view from the NHS, the view from the bridge at Richmond House, in Whitehall, remains more sanguine.  And the DoH is not likely to loosen its grip. Alexander acknowledges that, despite the pressure to ‘liberate’ the NHS, the department might need to exert greater short-term control to give it the confidence to allow freedom in the ­medium term – ‘for instance, to encourage greater standardisation of care and to have less variations between regional approaches to financial management, such as the way local business rules are set’.

He adds: ‘We have used SHAs pretty effectively as system managers.  Now we need a convergence in how we deal with circumstances that arise.

‘Sustaining financial control requires an understanding of variations and the risk they entail. So expect a tightening of control as we move into a different form of regulation.’

Liberation of the NHS, it seems, could be some time coming.

Noel Plumridge is a former NHS finance director and the author of CIPFA’s Payment by results

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