Health alert

27 Aug 14
Bad news stories are keeping the NHS in the headlines, despite the best efforts of ministers to shift the public’s gaze elsewhere before the election. Now two authoritative reports suggest there is a financial crisis ahead despite health reforms

By Noel Plumridge | 27 August 2014

Bad news stories are keeping the NHS in the headlines, despite the best efforts of ministers to shift the public’s gaze elsewhere before the election. Now two authoritative reports suggest there is a financial crisis ahead despite health reforms

August NHS feature

It was never the government’s intent that the NHS in England would loom large in the 2015 election campaign.  Controversial legislation, not signalled in party prospectuses, was pushed through Westminster during the first two years of the coalition’s term of office.  Though painful for many within the health system, the public was reassured by a message that health funding had been protected.  Besides, who in the wider world would care about the demise of a few more transient quangos?  

From 2012, with Andrew Lansley’s Act on the statute book and a new secretary of state in post, it would be possible to shift the government’s attention to other fields, notably education. Jeremy Hunt would be able to use his powers under the Act quietly to foster competition and increase private sector provision, while keeping the NHS largely out of the public gaze.  Right?

Not quite.  Bad news stories about the quality and safety of patient care, largely dating back to pre-coalition days, have kept the NHS stubbornly in the headlines. The Mid-Staffordshire and Morecambe Bay scandals ensured concerns about the NHS would continue. Despite attempts to associate these failings with the NHS managerial culture, and particularly with Sir David Nicholson – the Daily Mail’s ‘man who knows no shame’ – as chief executive, a growing parallel message has been that financial strictures, coupled with the competition regime, have been an integral part of the problem.  

These began with an alleged ‘loss of focus’ as NHS trust boards, desperate for foundation status as a route to survival, prioritised meeting Monitor’s financial ratios above care quality and safety. But increasingly there’s acceptance that the financial regime itself is causing difficulties, with funding ‘protection’ not being all one might suppose.

Waiting times and problems in accessing care have returned, touching areas as diverse as hospital accident and emergency departments, cancer care and GP practices. In May the total number of people on NHS waiting lists exceeded three million for the first time since 2008. Meanwhile, one material product of Sir Robert Francis’s public inquiry into events in Staffordshire has been a mounting concern about levels of nurse staffing on hospital wards. Trust boards, required to meet annual cost improvement targets of 4 per cent or more, have found that their scope to make savings on nursing is being very publicly constrained.

So is the NHS in England, after nearly a decade of financial surplus, now heading into a financial tailspin?  Two authoritative reports published in July suggest there may be trouble ahead.

The Audit Commission’s annual report on its auditors’ reviews of NHS bodies’ accounts – Auditing the Accounts 2013/14: NHS bodies – warns: ‘There is an increasing level of concern reported by auditors about the financial resilience of NHS trusts, with the number of non-standard conclusions on value for money arrangements and statutory reports both seeing a significant increase.  Auditors also reported matters arising about the value for money arrangements at a number of CCGs [clinical commissioning groups].’

Although the NHS remained in overall financial balance during 2013/14, 37 NHS trusts received a qualified conclusion on their value for money arrangements, of which 34 related to arrangements for ensuring financial resilience. Meanwhile, 19 CCGs were referred by auditors to the secretary of state for breaches of their revenue resource limits.  

Summarising the challenges ahead, the commission observes that 2014/15 is the final year of the spending review period during which NHS bodies have been required to make £20bn of efficiency savings – the so-called Nicholson Challenge. It says: ‘Auditors are increasingly reporting the failure of NHS trusts to achieve their cost improvement targets.  This, and the significant value of savings already made since 2010, suggests opportunities for non-recurrent savings or income generation are likely to be more difficult to identify, as many options have already been explored.’

And it concludes: ‘It is unlikely that in the short term there will be a reduction in auditor reporting in relation to concerns over financial sustainability.’

The language of the Audit Commission is measured and without hyperbole. It’s worth observing that no auditor issued a qualified ‘true and fair’ opinion; and that the commission does not oversee the activities of NHS foundation trusts, which tend to deliver stronger financial results than the 98 remaining NHS trusts.  Moreover, this will be the commission’s final report prior to closure next March; a note of undue optimism would perhaps be surprising.

Yet the message is plain enough.  The scope for efficiency savings is disappearing, and the impact of four years of savings in excess of 4% is becoming evident.  Moreover, this message is coming not from remote policy analysts or shroud-waving clinicians, but from sober, cautious auditors.

The second major report published in July, Into the red? The state of the NHS’ finances, from the respected Nuffield Trust, also draws on 2013/14 accounts, and praises NHS achievements to date; but it also analyses in some depth annual accounts, including those of foundation trusts, for the years up to and including 2012/13 as a basis for forward projections.  It concludes unequivocally: ‘We expect NHS finances to deteriorate further in 2014/15 and 2015/16. Although acute hospitals are showing the clearest signs of financial strain, all providers and commissioners face financial challenges. There is no sign that demand is reducing, particularly for acute trusts.  The financial year of 2015/16 is likely to be particularly difficult financially.’

In respect of costs, scope for savings and the consequent short-term prospects for the NHS in England, the Nuffield report reinforces the conclusions of the Audit Commission. It finds the true level of financial support to struggling acute hospitals to be greater than initially thought, as commissioners provide local help by funding care outside tariff payments. It notes the actual level of annual savings being achieved by foundation trusts to have fallen from 3.4% in 2012/13 to 3.0% in 2013/14, with the proportion of non-recurrent savings continuing to rise. ‘Year-on-year sustainable savings of 4%”, the Nuffield concludes, “now look unachievable.’ This is bad news.  The Nicholson Challenge, widely presented as ‘save £20bn’, could more accurately have been described as ‘save 4% per year for the foreseeable future’.  (The savings, originally intended for reinvestment, have in practice delivered annual underspends that revert to a needy Treasury.)  

And there’s more to come. Having squeezed NHS providers and commissioners, the belief has grown that further efficiencies are to be made by removing the slack from the whole system: from the various parallel (and sometimes competing) empires within the NHS, and across the boundary between the NHS and social care. Perhaps integration and transformation might deliver the savings the system needs.

There again, perhaps not. The Nuffield report examines the NHS track record in shifting care away from hospitals and into community settings. In 2012/13, it finds, spending on community services rose by just over £500m (5.7%). Yet spending on hospital services increased by 2.4% in real terms – not what was intended – while spending on general practitioner services actually fell by 0.1%. Within the acute hospital sector, emergency admissions rose by 1.8% in 2012/13 (and a further 0.4% in 2013/14); outpatient attendances rose by 3.9% and then 7.5% during the same periods.

‘Service transformation,’ the Nuffield concludes, ‘…seems very distant. But hopes and plans have been pinned on such a change. In the absence of transformation and without a credible alternative plan, the NHS seems destined to experience a funding crisis this year or next.’

It’s easy to list obstacles to service transformation.  They range from the systemic (a tariff funding system that rewards extra hospital activity) to the cultural (the public status and recognition of general hospitals); from timing (commissioners spending years in turmoil during and after the Lansley reforms) to organisational barriers reinforced by NHS governance rules and open market competition.  

Faced with the Nuffield analysis, though, one must also question the high hopes riding on integration.  Like the Quality, Innovation, Productivity and Prevention initiative before it, demanding financial aspirations have been buried within a reassuring language of quality and improvements in the patient experience. A glance at experience elsewhere in the United Kingdom – in ­Northern Ireland, say, with 40 years experience of merged health and social care – suggests that while integration offers real benefits for people already in the health and social care system, it does little to reduce overall demand – and hard savings remain hard to achieve.

Taking the Audit Commission and the Nuffield reports together, one thing is clear. Any future health secretary will need, possibly quite early in their term of office, to contend with difficult questions about financing health and social care.  So what are the current stances of the main political parties?

The autumn conference season is fast approaching.  Beyond lays the development of party manifestos, when ideas and aspirations are weeded, trimmed and transformed into policy commitments. At present we are still in the initial kite-flying phase, when ideas ranging from the cautious to the outlandish can be floated.  Yet themes are discernable.

Actually, there’s a worrying reluctance to address the financial challenge at all. Given the totemic status of the NHS and a received wisdom in political circles that it’s rash to be seen as in any way ‘against’ it, far safer to shelter behind platitudes around keeping the NHS safe.  

But there are important nuances about what the NHS constitutes. For Conservatives and market advocates, it’s about care that’s free at the point of delivery.  If the quality’s good, who cares if Virgin or Circle employs the nurse or the therapist?  However, Labour has recently begun to assert that delivery of care by NHS-employed staff is also important. A sop to public sector unions, or a belated realisation that hundreds of thousands of people work for the NHS, and they have votes?

Safer, too, to be vague about spending intentions and avoid any accusation of unaffordable commitments. But in July, Liberal Democrats were reported to be contemplating a hypothecated ‘NHS tax’ to secure the future of the health service.  Paul Burstow and Norman Lamb, a former and a current health minister respectively, are both understood to be sympathetic.

For the LibDems, it’s far from a new idea.  The notion of a direct link between national insurance contributions and the NHS has been around for some time. ‘A penny [on NI] for the NHS’ could be a credible slogan.  And in a context of potential coalitions, it has the added attraction of potential bridge-building with a Labour minority government; even if Ed Balls, in particular, has publicly distanced himself from the idea.

Labour has preferred to focus on a different issue: privatisation. Shadow health secretary Andy Burnham has called for a halt to the contracting-out of NHS clinical services. He highlights the ­coalition’s lack of any mandate for the Lansley reforms under which NHS services – especially outside hospitals – are now being progressively put out to tender.

Burnham’s kite doesn’t, of course, preclude action on NHS funding. That, perhaps, is for another day. As a former secretary of state, Burnham will be acutely aware both of Labour’s vulnerability to the old ‘tax and spend’ jibe; and to personal challenges about what he did, not so long ago, when in power.  The privatisation issue at least chimes with his own former advocacy of the NHS as preferred provider.

Yet a left-leaning opposition could propose more, without attracting brickbats. It could signal an end to the ideology of tariff funding – paying hospitals by the spell is at odds with a world dominated by long-term illness – and perhaps the broader ideology of competition. Doing so could conceivably prove a vote-winner.

 And the Conservatives? It remains to be seen whether the free-marketeers, some of whom remain hostile to the very idea of state-funded care, and the more pragmatic group that fears the public toxicity of privatisation, can maintain broad harmony or whether open warfare will erupt. 

Chances are the Conservatives may also duck the funding issue, banging the drum for greater efficiency despite mounting evidence it will not be delivered.  Meanwhile the use of the social enterprise model to shift more assets from the government balance sheet, and more staff from state employment, seems likely to continue and even accelerate.

All parties face a conundrum. Across the western world, ageing societies and rising expectations are increasing demands on health systems. British politicians are wary of committing more resource, yet there’s mounting evidence that the efficiency savings quest is becoming illusory. And any suggestion of diluting the ‘free at the point of delivery’ NHS – witness Lord Warner’s notion of charging a £10 monthly ‘membership fee’ – is to step into a political swamp.

As riddles go, it almost beats social care funding …

Noel Plumridge is an independent consultant and former NHS finance director

This feature was first published in the September edition of Public Finance magazine


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