The NHS is facing an unprecedented challenge as it will have to deliver far reaching reforms to patient care at the same time as the demands increase and there is effectively a real terms reduction in its funding over the next four years. That is the verdict of a comprehensive analysis of the Spending Review and the NHS reforms outlined in the Government’s recent health White Paper, published today by the Nuffield Trust.
The analysis by the independent health think tank, which draws on UK and international research evidence, supports the broad direction of NHS reform outlined by the Government and commends the decision to protect health spending relative to other areas of the public sector. But the Nuffield Trust warns that unless the NHS can keep a tight grip on pay and price inflation it will mean a reduction each year in the volume of health care services the NHS can deliver, if current trends continue.
The NHS will receive 0.4 per cent real terms growth over the next four years to 2014/15 – i.e. 0.1 per cent per year. This compares to an average real terms increase of 5.7 per cent from 1997/98 to 2009/10. The Spending Review announced that £1 billion a year of NHS funding will be transferred to social care. The Nuffield Trust’s analysis reveals that the real terms change in health funding – net of the £1 billion a year that will go to social care – will represent a reduction of 0.5 per cent over the next four years.
In a little noticed move, the spending review announced a major change to the rules governing under-spends across the government. This has profound implications for health. The NHS had £5.5 billion of cumulative under-spends at the start of this financial year and it is planned to make a further under-spend of around £1 billion in 2010-11. The spending review announcement means that none of this money will be returned to the NHS, in effect a retrospective cut in spending plans. Since 2008/9 the DH has specified to the NHS that it must not spend its full resource allocation in each year.
Dr Jennifer Dixon, Chief Executive of the Nuffield Trust, said: ‘There is much to support in the Government’s approach, and the Spending Review has left the NHS in a privileged position compared with other public services. But make no mistake – the NHS has never faced a challenge like this. The biggest question now is whether the NHS can meet the £15-£20 billion of efficiency savings that are required at the same time as coping with a major reorganisation and a 45 per cent cut in management costs. Productivity increases of around four or five per cent a year are now required. This may be possible but it is unlikely to happen without fundamental changes to services.’
Nuffield Trust Chief Economist Anita Charlesworth added: ‘The spending review announcements for health are generous in comparison to many other areas of public spending but at 0.4 per cent are at the lowest level possible to fulfil the government's commitment to a real terms increase. But this does not take into account the fact that the Government is transferring £1billion a year from the NHS budget to social care. On the one hand, given the pressures on local government spending, ageing population and close link between social care support and admissions to hospital this may well be good value for money. But, on the other, it means that health spending will actually fall in real terms over the spending review by around 0.5 per cent. This will make the loss of at least £5.5billion of cumulative under-spends over the last few years even harder for the service to manage.'
The Nuffield Trust analysis concludes that the Government’s proposed NHS reforms, which include giving GPs greater responsibility over budgets, are broadly in the right direction and that they will be a success if they help the NHS to live within the tighter resources, while continuing to improve quality and health outcomes. However, on the basis of national and international research evidence, the Nuffield Trust advises that the reforms need refining if they are to make the most of the opportunities they present.
In particular, if GP commissioning is to work, history shows the consortia will need time and management resource. There is emerging evidence that competition between hospitals, in a fixed price market, is associated with increases in quality, but price competition leads to lower quality care. The move to maximum prices therefore risks skimping on quality. Indicators showing health outcomes after care are important to develop, but may not signal quickly enough changes in the quality of care patients receive. The Government should consider a set of national indicators as sentinel measures of quality that can more readily identify where service quality may be lapsing, such as avoidable hospitalisations, measures of access to care and other health care process measures that can signal potential risks to patients, for example chronic care. They would need to be monitored regularly and publicly. Finally, how GP Consortia are accountable to the population they serve still needs much further thought.
Dr Dixon added: ‘The lessons from similar reforms in the past show that such approaches take time to develop and require significant management resource. There is clear evidence that organisations distracted by reform can experience major financial and service failure. Failure could come in several forms, including a lack of control of expenditure, rushed service changes, or more fundamentally a decline in the quality of care, so it will be important to monitor and safeguard quality as a high priority.’e no mistake – the NHS has never faced a challenge like this. The biggest question now is whether the NHS can meet the £15-£20 billion of efficiency savings that are required at the same time as coping with a major reorganisation and a 45 per cent cut in management costs. Productivity increases of around four or five per cent a year are now required. This may be possible but it is unlikely to happen without fundamental changes to services.’
Nuffield Trust Chief Economist Anita Charlesworth added: ‘The spending review announcements for health are generous in comparison to many other areas of public spending but at 0.4 per cent are at the lowest level possible to fulfil the government's commitment to a real terms increase. But this does not take into account the fact that the Government is transferring £1billion a year from the NHS budget to social care. On the one hand, given the pressures on local government spending, ageing population and close link between social care support and admissions to hospital this may well be good value for money. But, on the other, it means that health spending will actually fall in real terms over the spending review by around 0.5 per cent. This will make the loss of at least £5.5billion of cumulative under-spends over the last few years even harder for the service to manage.'
The Nuffield Trust analysis concludes that the Government’s proposed NHS reforms, which include giving GPs greater responsibility over budgets, are broadly in the right direction and that they will be a success if they help the NHS to live within the tighter resources, while continuing to improve quality and health outcomes. However, on the basis of national and international research evidence, the Nuffield Trust advises that the reforms need refining if they are to make the most of the opportunities they present.
In particular, if GP commissioning is to work, history shows the consortia will need time and management resource. There is emerging evidence that competition between hospitals, in a fixed price market, is associated with increases in quality, but price competition leads to lower quality care. The move to maximum prices therefore risks skimping on quality. Indicators showing health outcomes after care are important to develop, but may not signal quickly enough changes in the quality of care patients receive. The Government should consider a set of national indicators as sentinel measures of quality that can more readily identify where service quality may be lapsing, such as avoidable hospitalisations, measures of access to care and other health care process measures that can signal potential risks to patients, for example chronic care. They would need to be monitored regularly and publicly. Finally, how GP Consortia are accountable to the population they serve still needs much further thought.
Dr Dixon added: ‘The lessons from similar reforms in the past show that such approaches take time to develop and require significant management resource. There is clear evidence that organisations distracted by reform can experience major financial and service failure. Failure could come in several forms, including a lack of control of expenditure, rushed service changes, or more fundamentally a decline in the quality of care, so it will be important to monitor and safeguard quality as a high priority.’