Author: Judith Smith
Date: 10/11/2009
Organisation: Healthcare Finance
Extract:
The NHS is facing one of the biggest financial challenges in its history. Charged by NHS chief executive David Nicholson with delivering savings of between £15bn and £20bn by 2014, the NHS is at a pivotal moment.
The old ways of the 1980s and 1990s – limiting demand, reducing capacity and raiding capital – budgets are not going to work this time. Instead the financial crisis must be used as a catalyst to transform service delivery in ways that preserve and extend the improvements made to access and quality, while delivering much greater efficiency.
There are two main approaches to improving efficiency: allocative efficiency that focuses on how services are funded in relation to different priorities; and technical efficiency that seeks to improve the relationship between providers’ inputs, costs and activity. Attention to both aspects will be crucial.
The NHS is going to have to make even harder decisions about what it will and will not offer in future. Techniques such as programme budgeting will need to be used to examine the overall spend on specific conditions and client groups, as benchmarked against the pattern of spending in other primary care trusts (PCTs). These analyses will help decide how to rebalance local funding – where should funds be reduced and services reshaped or even removed.
On the technical side, commissioners and providers will need to work closely, using forensic analysis of costs and activity to extract significant savings from services where there is unexplained variation in costs. This will call for strong, sophisticated commissioning and, given the evidence on the performance of NHS commissioning to date, that is much easier said than done.
There is an important connection between allocative and technical efficiency. It is tempting to turn immediately to priority setting (more widely understood by the public as rationing) in a time of economic constraint. But it is arguably more important to focus first on technical efficiency – to prove that services are properly productive before decisions are made on what to fund or not fund.
Most of the debate on technical efficiency assumes the main gains are to be made in hospital services. But we cannot expect all the efficiencies to come from the acute sector, reductions in the national tariff or pay restraint. We must look across the system.
The financial squeeze could finally force the NHS to restructure itself around community services and deliver the transformational change set out in the white paper Our health, our care, our say. This would not be a simple ‘reduce hospital costs; invest in community and primary care’ equation. There is as much, if not more, of a challenge facing community health services and general practice, whose models of care have not faced the scrutiny and modernisation experienced by most hospital trusts in recent years.
Examining how the NHS can deliver efficiency gains is the focus of a new programme of research and analysis from the Nuffield Trust. New frontiers in NHS efficiency will look at aspects of allocative and technical efficiency and set out recommendations for commissioners, provider managers, clinicians and policy makers on how the NHS can improve its productivity and deliver more value for less.
Forging new frontiers in efficiency is the challenge facing the service. Alongside engaging clinicians in reform and finding incentives for improved quality of care as close as possible to home, strengthening commissioning will be crucial to ensure the NHS can not only survive but thrive in the coming squeeze.
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