By Noel Plumridge | 02 September 2013
Politicians are engaged in a war of words over who is responsible for NHS failures. But it’s the financial structure that is largely to blame.
During 2013, The NHS in England has rarely been out of the news. Since February, when the Francis report on poor hospital care in Staffordshire was finally published,
investigations and revelations have been chipping away at confidence in the safety of NHS hospitals. Many of the building blocks of NHS care – from accident and emergency departments to ambulances, from GP access to telephone support – appear to be crumbling. After the stormy passage of Andrew Lansley’s Health and Social Care Act last year, politicians might have hoped for a period of relative calm. Yet Jeremy Hunt, who succeeded Lansley as secretary of state a year ago, has been unable to restore public confidence in the coalition’s stewardship of the NHS, preferring instead to deflect attention by blaming the previous government for the safety failures.
The two biggest scandals surround hospitals in Stafford and Barrow-in-Furness. At Stafford, media reports have suggested that between 400 and 1,200 people might have died unnecessarily between 2005 and 2008. The methodology behind the estimates is questionable, but no one doubts the numerous well-documented examples of inept and callous care: patients being allowed to lie in their own urine and excrement, for instance, or with food and drink placed out of reach. And none of the organisations responsible for overseeing and regulating Stafford Hospital had intervened.
Robert Francis, a barrister, was engaged in 2010 to chair a public inquiry into how such poor care had been allowed to develop. While Francis was preparing his report, news of a series of infant and maternal deaths between 2004 and 2008 at Furness General Hospital was beginning to emerge. Although on a smaller scale than Stafford, the Furness scandal attracted new attention when a report highlighting regulatory failings was published in June 2013.
The media demanded that the managers responsible be identified. In May 2013, Sir David Nicholson, the chief of the NHS who was pilloried by the Daily Mail as ‘the man with no shame’, was forced to resign. Minister for Health Dan Poulter was quick to link what happened at Barrow-in-Furness to the Stafford experience, blaming a ‘rotten culture’ and ‘institutional secrecy’, and singling out the regulator, the Care Quality Commission, for special blame.
Meanwhile, the Stafford scandal had generated processes intended to reassure the public, but guaranteeing NHS safety would remain in the media spotlight. Bruce Keogh, NHS medical director, was asked to review 14 other hospitals with statistically high mortality rates. His report was published in July. It was followed in August by former head of Medicare Don Berwick’s strategic review of patient safety in the NHS, commissioned by David Cameron six months earlier.
Both Keogh and Berwick are balanced and practical in their recommendations. Berwick, guru of the US ‘health improvement’ movement, offers considerable praise for NHS performance. Yet their reports have ensured patient safety remains in the public eye. And the secretary of state, despite his responsibility for the NHS in England, appears curiously comfortable blaming NHS staff and advocating further ‘reform’.
The spring and summer have also been peppered with incidents suggesting that NHS care is no longer reliable. Most prominent have been reports of long waits at hospital accident and emergency departments, and queues of ambulances waiting to drop off patients. With the College of Emergency Medicine likening A&E departments to ‘war zones’ and widespread reports of crisis, the Department of Health has been forced to intervene. In August, an additional £250m was found to ease A&E pressures in the coming winter.
But increased demand for A&E is symptomatic of failures elsewhere in the system. Hunt has been vociferous in his criticism of restrictive practices in the GP sector, linking queues in casualty to closed doors at the GP surgery. Meanwhile, shadow health secretary Andy Burnham has been assiduously raising the political stakes. Clumsy introduction of the new NHS 111 telephone advice line – for ‘when it’s less urgent than 999’ – has also been blamed, with mounting A&E attendances attributed to fragile systems, poorly trained call handlers and rushed implementation of a concept still regarded with deep suspicion.
Some also blame the cumulative impact of cuts in social care, which position NHS hospital care as a ‘safety net’. Few, however, publicly link deteriorating NHS performance to cuts in health funding. Indeed, the perception remains that NHS funding has been ‘ring-fenced’. This is the context of the announcement in this year’s Spending Review of a current-year transfer of £859m from the NHS to local authorities for social care – the so-called ‘integration fund’.
Actually, finance lies at the heart of NHS problems. The foundation trust financial regime, the competition and tendering model now in force, naïve expectations, and a smoke-and-mirrors approach to the availability of funding each play their part.
Both Stafford Hospital (Mid Staffordshire NHS Foundation Trust) and Furness General Hospital (University Hospitals of Morecambe Bay NHS Foundation Trust) sit within larger foundation trust entities. As such, they are subject to a financial regime, overseen by regulator Monitor, that imposes tight controls on spending, liquidity and key balance sheet ratios. Its laudable intent is to ensure service sustainability in a tightening financial environment.
But if an NHS trust has still to attain foundation trust status, survival is at stake. A total of 18 trusts – including hospitals as substantial as Nottingham Healthcare and the Royal United Hospital, Bath – currently await Monitor’s verdict. If their bids fail, predators will be waiting.
Prior to its authorisation in February 2008, the Mid Staffordshire trust was in a similar position. (The Morecambe Bay trust was not authorised until October 2010.) The Francis report paints a picture of a board preoccupied with finance, regulatory compliance and Monitor’s expectations, slimming down staffing levels to attain the required cost to income ratios and paying scant attention to care quality.
But since 2008, an aggressive competition regime has only redoubled that fear of imminent extinction, which leads NHS boards to focus on fi nance rather than health outcomes or patient safety. Clinical commissioning groups, like their primary care trust predecessors, must seek competitive tenders for care services, and often view competition as a way to encourage transition to community-led services. From Cornwall to Suffolk, outsourcing companies such as Virgin and Serco have been building their health portfolios.
In the acute-hospital sector, however, squeezed payment-by-results tariffs have tempered commercial interests. Private provider Circle has failed to transform the fortunes of Hinchingbrooke Hospital in Cambridgeshire. Attempting to renew capital assets at the same time as trimming £7m from revenue costs, Circle has been reduced to selling the land on which the car park stands and approaching the Department of Health for a £3.5m working capital loan.
Other firms watch with dismay. No commercial provider has rushed to take on the high-profile challenge of South London Healthcare, where in July, the High Court ruled that the proposed downgrading of neighbouring Lewisham Hospital’s A&E department went beyond the special administrator’s powers.
Any lingering naïve belief in lucrative gains in health care will have been further dented by NHS Direct’s July decision to pull out of NHS 111 contracts covering one-third of England. NHS Direct had tendered at between £7 and £8 per call, then found that its actual costs were nearer to £20 per call. Faced with rolling losses of some £1.5m per month on a discredited product, the organisation – akin to an NHS trust – decided to pull the plug.
Ministers were embarrassed. Perhaps the NHS Direct tender was naïve, but one also must query the wisdom of those evaluating their bid – and, indeed, any strategic assumptions about the ability of the health system to yield large financial savings yet maintain quality and safety.
For the foundation trust business regime, the tariff squeeze, outsourcing and competitive tendering are all ultimately tools to achieve a fiscal objective: absorb strategic demand and cost pressures without recourse to additional public funding. This is the essence of the so-called ‘Nicholson challenge’, which has imposed an annual savings target of at least 4% on NHS providers.
However, the finances are less than transparent. For the past three years, NHS funding has been broadly protected, in real terms, allowing ministers to claim with a clear conscience that the NHS budget is ring-fenced. Yet each year, the NHS has underspent by around 1.5%. In 2010/11, PCTs and strategic health authorities underspent by £1.37bn; in 2011/12, the figure rose to £1.58bn; and the projected 2012/13 amount is £1.18bn. NHS trusts and foundation trusts have also achieved material ‘surpluses’. All of the signs are that this pattern will be repeated in 2013/14.
It’s a neat device. The budget is preserved, but in reality, it doesn’t all get spent. Indeed, most of the cash never leaves the Treasury. And the language of ‘surplus’, which hints at fi nancial success, doesn’t suggest any connection between savings and the badnews stories that can be attributed to nursing standards or organisational culture.
Sustainability, however, is another matter. The planned ‘integration fund’ that was announced in the Spending Review and widely welcomed by local authorities may yet prove a squeeze too far. In July, Paul Baumann, NHS England’s chief fi nancial offi cer, advised his board that releasing NHS money for social care would increase the annual effi ciency target to at least 6–7% by 2015/16.
‘That’s a non-trivial task,’ said Baumann. ‘It... takes it into a whole different category of the stretch that is required. It’s quite a heroic undertaking.’
Strategic rebalancing between the health and social care budgets may be admirable. Baumann’s warning, however, implies that the NHS will remain in the news throughout the run-up to the 2015 general election. Everyone may want ‘integration’, but heroic change in patterns of health provision carries a high political risk.
Noel Plumridge is a an independent consultant and former NHS finance director
This feature was first published in the September edition of Public Finance magazine
