News analysis The long and winding road ahead for the NHS

13 Sep 07
No wonder the King's Fund had to take it upon themselves to commission Sir Derek Wanless's review of progress against his 2002 recommendations on funding the NHS.

14 September 2007

No wonder the King's Fund had to take it upon themselves to commission Sir Derek Wanless's review of progress against his 2002 recommendations on funding the NHS.

When the then-chancellor, Gordon Brown, commissioned the former Nat West banker to assess the long-term funding requirements of the health service, the NHS was two years into a funding growth spurt averaging 7.4% a year.

Today, the smart money is on a dramatic slowing to nearer 3% annually when the results of the Comprehensive Spending Review are revealed in the weeks ahead.

In his assessment of progress over the past five years, published on September 12, Wanless suggests that turning off the tap in this way may have serious consequences.

He is warning that even the least expensive of the projections he set out for the NHS's future funding needs in his 2002 report may now be missed. Hardly welcome news for a government that has loudly and repeatedly proclaimed its commitment to the health service.

His 2002 report set out three separate scenarios for future NHS performance which he labelled 'slow uptake', 'solid progress' and 'fully engaged'.

The 'fully engaged' option was the most optimistic, and assumed that substantial improvements to productivity and reductions in unit costs would be achieved. As a result it was the cheapest in cash terms, requiring a real growth in resources of 126% by 2022/23 from £68bn to £154bn (at 2002/03 prices).

But it was also the most stretching, because the assumed productivity improvements – requiring an increase in the quality and numbers of patients successfully cared for and a reduction in unit costs – were equivalent to £46.5bn a year by 2022/23.

At the other end of the spectrum, the 'slow uptake' scenario absorbed the most cash – a 171% increase to £184bn by 2022/23. Living within these extended means would still require productivity improvements, however, and Wanless proposed that around £25bn worth a year should be achievable by 2022/23.

The 'solid progress' option charted the middle ground between the other two.

In his progress review, Our future health secured?, Wanless has assessed the government's performance against these scenarios in the five years since Brown accepted his recommendations.

On funding, for the first five years the government gets full marks, with actual spending on the NHS almost exactly meeting Wanless's recommendations and bringing UK total health care spend 'within striking distance of average European Union spending as a proportion of gross domestic product'.

So Wanless finds the NHS in a good position to follow any of his three projected scenarios as, in funding terms, each required the same increase for the first five years.

But he does not have to go far before he finds problems. For more than a year, the Treasury and Department of Health have ensured that few in the NHS expect a funding increase of more than 3% a year over the next four years.

'This would place the UK near the bottom of future estimates of the average total EU health care spend,' Wanless warns. While he acknowledges that the recent annual increase of 7.4% 'cannot be sustainable indefinitely,' he argues that even in his cheapest scenario – 'fully engaged' – real-terms funding must increase by 'at least' 4.4%.

Putting that concern aside, Wanless asks if the increases enjoyed between 2002/03 and 2007/08 have been spent wisely.

Almost half of the extra £43bn spent between those years went on pay and price inflation. Confirming analyses by the National Audit Office, Wanless finds 'very little robust evidence' to demonstrate significant productivity benefits from the various NHS pay deals.

As has been documented elsewhere, part of the increase in funding was used on the over-fulfilment of staffing plans – by 239% in the case of nurses. Last year, the DoH told the Commons health committee that such 'overshooting' should take a significant part of the blame for NHS deficits.

Health service unions have complained that cuts in nursing and clinical posts have been rife as trusts attempt to return to their planned staffing numbers.

But now Wanless has warned – on the basis of health-need projections – that those plans themselves could be wrong and significantly undershoot need by around a third as early as 2009.

A growing backlog of facilities maintenance and estate modernisation, as well as the troubled national programme for IT, also come under criticism from Wanless as factors likely to 'seriously undermine' required productivity gains.

And while the report endorses the DoH's intention to move from a central to local governance system for the NHS, it finds that in practice such change has been 'piecemeal' and 'costly, not just financially but in terms of disruption, loss of experienced staff and changes in working relationships both within the NHS and with external organisations'.

Despite these problems, overall Wanless classes the level of resources put into the NHS as 'close' to his 'solid progress' scenario. The problem, he concludes, is how these resources have been used in terms of the outputs achieved.

Productivity increases – achieving more for less – are at the heart of all three of Wanless's 2002 scenarios.

At the optimistic end of the scale, both the 'fully engaged' and 'solid progress' scenarios assumed a 2% to 2.5% a year productivity gain by 2012. Under 'slow uptake', 1.5% a year was expected.

Under the two less expensive scenarios, around a third of this productivity gain – £700m in monetary terms – was expected to come from 'quality' improvements.

This, he concludes, has been 'just about met' if the DoH's analysis of the number of quality-life years gained through the prescribing of cheap generic statins, designed to prevent heart attacks and strokes, is correct.

That finding is badly timed for the DoH, however, as recent research has suggested that generic statins are less effective than the branded, more expensive originals.

But even if the statin estimates are correct, Wanless struggles to find many other examples of productivity-enhancing quality improvements.

'Substantial' improvements in waiting times are undeniable, he says, but notes that health economists have found these add 'very little to a quality-weighted measure of NHS output'. Simply put, they don't add much in terms of quality-life years.

That then leaves the NHS with a remaining productivity target for 2002/03 to 2007/08 of around £1.4bn a year under the 'fully engaged' and 'steady progress' scenarios, and £700m a year under the 'slow uptake' scenario.

These remaining gains were supposed to have been met through unit cost reductions, but Wanless has found that in the past five years there have actually been average unit cost increases of around 10% in elective and non-elective care, and of 6.1% in outpatient care.

Consequently, there is a hole in the NHS's finances where the productivity gains should be. And, with NHS funding set to slow substantially, all three of Wanless's 2002 scenarios are looking elusive.

How the NHS shapes up since 2002

Solid progress Life expectancy, resources, smoking cessation; and exercise

Between solid and slow Costs; cancer survival; infant mortality; nutrition; and health outcomes

Slow uptake or worse Productivity; future funding expectations; public health; long-term conditions; health inequalities; and obesity


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