Email your comments

In the first of our reports from our BGS Topic Leads, Mehool Patel and David Beaumont analyse the implications of the economic crisis for the NHS and the impact on geriatric medicine.

There have been several recent reports and media news items examining the bleak future of NHS funding. The King’s Fund and Institute for Fiscal Studies recently produced a report outlining three possible scenarios for NHS funding in England from 2011/12 to 2016/17, the consequences for spending in other Government departments and the implications for general taxation levels of each scenario¹.

Net UK spending has risen 10-fold to more than £127 billion over the past 60 years, with an average annual increase of 4 per cent in real terms¹. NHS share of GDP has also increased from 3 to 9 per cent, albeit still lower than the European Union average¹. Funding of the NHS in England has grown exponentially over the last decade and almost doubled since 1999/2000, in accordance with suggestions by the Wanless report². Alas, with the current recession, this growth is bound to be reduced and maybe even turned negative. Interestingly, historic records indicate that NHS spending appears to ‘grow’ initially, during periods of recession, and there is a ‘lag’ between GDP and NHS spending¹. Given current NHS spending, we might expect a similar lag for reduced funding post-2011.
The King’s Fund examined three future funding scenarios and the consequence of each for the NHS. These are classified as follows (figure 1):

• ‘arctic’ scenario: real funding cuts (-2 per cent for first three years, -1 per cent for second three years)
• ‘cold’ scenario: 0 per cent real growth in six years
• ‘tepid’ scenario: real increase (+2 per cent for first 3 years, then +3 per cent for the next three years).

Historically, there has never been a 6-year period of 0 per cent growth or a 6-year period of real reductions. However, post-recession experience tends to be for reductions in NHS funding growth rates.

Government policy choices over public spending will depend on priorities and trade-offs, and what is financially and politically affordable and credible. During recession, social security benefit payments are bound to increase. Government debt interest payments depend on past borrowing and market interest rates. Public spending will have to reduce overall by 2.3 per cent per year between 2011-20141. It will therefore be necessary for a potential trade-off between NHS and other departmental spending over this period (Figure 2).

For example, the cold scenario would require other departmental spending to be reduced by 3.4 per cent per year, whereas the tepid scenario would require 4.5 per cent per year1.

Alternatively, the government could relax the budget constraint by increasing taxation or borrowing more1. For example, if non-NHS spending grew by 1.5 per cent/year, this would require an increase in taxation by 2016/2017 of £2.6 billion for arctic, £5.6 billion for cold and £17.1 billion for the tepid scenario. This would equate to £80, £180 and £540 respectively, for every UK family.

Future needs of the NHS
With changing demography and the rising older population, the need for NHS services is bound to increase. In order to maintain existing quality alone, NHS spending would need to rise by 1.1 per cent per year to meet the increasing need. Thus, the tepid scenario would meet the increased ‘demand’, whereas the other two scenarios would fall short between £7-16 billion by 2016/17.

The Wanless report in 2007 also proposed certain funding projections on the basis of various assumptions such as demographic changes, public health changes and attitudes, NHS productivity gains and better use of health technologies3. Compared with those projections, the King’s Fund predicts a shortfall range of £4-40 billion, depending on future demand.

NHS productivity
The NHS could potentially fund the gap by increasing its productivity by 3.4-7.4 per cent per year, equating to £21.6 - £47 billion. Interestingly, UK NHS productivity actually fell by 4.3 per cent between 1997 and 2007, at an average of -0.4 per cent per year!

Considering all assumptions and analyses, the King’s Fund report concludes that the most likely outcome for NHS funding would lie somewhere between cold and tepid scenarios¹.

Another recent economic report by Deloitte, in consultation with its pubic-sector clients, suggests that government organisations could take a series of tactical cost-optimisation steps in light of this economic downturn⁴. These include:

• centralising procurement of common commodities across their domains
• managing sickness and poor performance levels more effectively
• reviewing extraneous management levels
• reviewing operational requirements for temporary staff
• terminating individual projects that provide no benefit to frontline service delivery or corporate capability building
• developing a programme to seek short-term revenue generating opportunities across non-statutory services
• exploring alternative payment options for contractors and engaging in closer dialogue with suppliers to find ways to reduce costs over the short term.

According to The Health Service Journal, McKinsey and Company have also produced a report regarding the economic changes that the NHS needs to endure to find £20 billion of savings⁵. The report proposes tough recommendations including:

• slashing NHS workforce by 137,000
• saving £600 million by limiting new and follow up appointments
• saving £200 million by cutting ‘unnecessary’ diagnostics
• reducing the number of medical school places to prevent future unemployment
• reviewing plans to increase staffing and investment for the national stroke strategy
• reviewing certain ‘ineffective’ clinical interventions by presenting treatment choices in ways that lead to fewer opting for surgeries such as hip replacements and hysterectomies.

So what does this mean for Geriatricians?
Given that recent years have seen unprecedented investment in the NHS and expansion of many clinical services predicated on additional income received under Payment by results, the issue for Geriatricians and all consultants will be to appreciate that from 2011, income into Primary Care Trusts and Provider trusts in England will probably not be increased significantly over the following three financial years. However, the costs borne by Trusts will continue to rise due to demographic changes, inflation and the need to achieve quality and activity targets, equivalent to approximately 6 per cent per annum recurrently (or 18 per cent over 3 years). This gap in funding will have to be met by efficiency gains and reductions in costs, which will not be able to be offset by additional income for more work done, at least not from within the NHS.

In practical terms, this is likely to mean pressure for consultants and clinical teams in Trusts to work differently. For example,

• Increase the number of new patients seen relative to follow up patients in Clinic
• More nurse led follow up at reduced tariff
• Reduce length of stay by increasing the number of consultant ward rounds, reviewing each others’ patients in a team based way, and greater involvement with early decision making at the front door
• Substantial bed reductions making rehabilitation wards vulnerable to closure
• Transferring services to community settings where possible
• Pressure to reduce SPA time in consultant job plans in favour of more direct clinical care activities which may limit teaching, training and research time.
• Staff reductions. Given that 70 per cent of NHS costs are attributed to staff, it seems inevitable that Trusts will seek to decrease the number of staff employed by vacancy control and natural wastage.

It is also probable that PCTs will not pay additional tariff for extended stays in hospital arising from pressure ulcers or healthcare acquired infections, meaning that Trusts will be expected to bear the costs associated with these complications.

However, midst the doom and gloom there are always opportunities. It is recognised that for such changes to be possible there will be a need for strong clinical leadership and greater involvement of consultants. Our advice to all Geriatricians would therefore be to step forward and get involved with discussions locally, firstly to ensure that our patients continue to receive high quality care in the appropriate setting, but also to take the opportunity to revamp our services to improve quality within current financial constraints.

Mehool Patel
David Beaumont
BGS Topic Leads on Health Economics

References

1. Appleby J, Crawford R, Emmerson C. (2009) How cold will it be? http://www.kingsfund.org.uk/research/publications/ how_cold_will_it_be_html (Last accessed on 11 October 2009).
2. Wanless D. (2002) Securing Our Future Health: Taking a Long-Term View.
http://www.hm- treasury.gov.uk/consult_wanless_final.htm
3. Wanless D, Appleby J, Harrison A, Patel D (2007). Our Future Health Secured? A review of NHS funding and performance. http://www.kingsfund.org.uk/research/publications/our_future.html
4. Turning the tide. Opportunities for public-sector organisations in an economic downturn. (2009)
http://www.deloitte.com/assets/Dcom-Portugal/Local%20Assets /Documents/pt(en)_pslshc_turningtide.pdf (Last accessed on 11 October 2009).
5. The Health Service Journal. 2009.
http://www.hsj.co.uk/news/policy/nhs-spending-mckinsey-exposes-hard-choices-to-save-20bn/5005952.article. (Last accessed on 10 November 2009).

BGS Newsletter, November 2009
Issue 24 ISSN 1748-634000 24