NHS finance: where should we focus in the future?

29 Mar 16

The parlous state of the NHS finances requires answers to some difficult questions from the number of commissioners and providers to the role of the market

Today, NHS finances are in a hugely challenging position with the latest results from NHS trusts and NHS foundation trusts showing a year-to-date deficit of over £2bn. This suggests that the already alarming forecast of a £1.8bn shortfall for 2015/16 will be breached without radical action. There are no historic precedents for a deficit of this scale and this position is further exacerbated by the lack of significant real-terms growth in health spend, despite the health budget being protected by the government.

So how did the financial position deteriorate to this position so quickly from a combined surplus of £1.5bn in 2012/13? Are there solutions that are not structural or long-term? And what meaningful contribution can finance professionals make in such a difficult environment?

It would be too easy to compare UK healthcare spend as a proportion of GDP and put the current financial difficulties down to underfunding. Since the Blair government committed us to match European levels of spending on healthcare in 2000, we have actually seen spend increase to the European average of 9%.

This period has also seen the so-called ‘Lansley reforms’ introduced in 2011, the demise of strategic health authorities, primary care trusts being replaced by clinical commissioning groups, and the creation of NHS England and the Trust Development Authority. The latter has now being subsumed, along with Monitor, into the newly created NHS Improvement.

This constant turmoil in the oversight and regulatory framework may have contributed to the current financial position. The absence of robust system management and a clear separation of commissioner and provider priorities may have also contributed to long-running problems in the health economy. It is also important to consider how the impact of a significant cohort of experienced commissioners, system managers and regulators leaving the NHS contributed to the already unprecedented pressure it faces.

Against this backdrop, NHS England produced the Five-year Forward View, which called for an additional £30bn of funding by 2020. This was predicated on £22bn coming from traditional efficiency savings, leaving a shortfall of £8bn, which has now been accepted by the current government as a priority in the last Spending Review. But with Lord Carter’s recent interim report on provider productivity opportunities identifying £5bn of potential savings, not all of which can be delivered immediately, it’s hard to see how this can be considered a robust conclusion.

This leaves providers having to find the remainder through efficiency savings, while the pressures to maintain current operational standards, such as the four-hour emergency department standard, and the focus on patient safety are unrelenting. Add to this the absence of a clear definition of financial failure, with the consequences thereafter and it is apparent that this is a severe problem.

So what, then, is to be done? First, we need to question whether the current number of NHS providers and commissioners are sustainable, and whether we can rationalise these organisations without becoming ensnared in undue consultation and process. Given the current staffing position across the service, there should be absolutely no need to lose any more experienced personnel.

Second, we need to urgently review the national tariff payment system and payment by results. This approach has served its purpose in helping to build capacity, increase the number of patients seen and helping to incentivise the reduction in waiting lists. There has never really been an effective way of remunerating healthcare providers for emergency treatment where they have very little opportunity to influence demand. This should be replaced as soon as it is practicable, at least in part, by some form of population-based funding.

Third, the emphasis must move away financial transactions to partnering with investment decision makers. The Efficient Systems and Processes workstream within the NHS Future Focused Finance programme identified how much time, effort and resource is spent on tasks of limited use within organisations, such as recoding expenditure, and between organisations, such as querying invoices. These activities are far removed from world-class finance functions and should be dispensed with, allowing a renewed focus on value creation.

Finally, if we are to retain a health service funded through general taxation, free at the point of delivery and with near universal coverage, we need to determine whether this is best facilitated through increased market influence and competition or greater intervention and planning. What is absolutely clear is that trying to accommodate both has had limited success and is unlikely to enable us to tackle the pressures we currently face.

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