Memorandum by The King's Fund (SAV 04)
PRODUCTIVITY IMPROVEMENT IN THE NHS
The King's Fund is a charity that seeks to understand
how the health system in England can be improved. Using that insight,
we help to shape policy, transform services and bring about behaviour
change. Our work includes research, analysis, leadership development
and service improvement. We also offer a wide range of resources
to help everyone working in health to share knowledge, learning
and ideas.
BACKGROUND
After a decade of unprecedented real growth
in funding for the National Health Service, indications are that
for the years up to 2012/13—and possibly up to the end of
the next spending round in 2013/14—funding growth will be
zero in real terms. Planned spending for the NHS in England for
2010-11 will increase by just 1.6% in real terms, and the Pre-Budget
Report stated that for 2011-12 and 2012-13, while 95% of the English
NHS budget will be "protected"—that is, a cash
rise matching inflation—5% will be subject to small real
reduction (HMT 2009). Overall, therefore, the NHS in England is
likely to receive a small real cut in its total funding for (at
least) the two years 2011-12 and 2012-13.
Both the Department of Health (Nicholson 2009)
and an independent joint analysis by The King's Fund and the Institute
for Fiscal Studies (Appleby et al 2009) reach a similar conclusion
about the demand and cost pressures on the English NHS up to 2013-14,
with estimates of a funding gap valued at between £15 billion
to £20 billion (at today's prices) on a total budget of around
£105 billion.
The King's Fund/IFS analysis identified the
options for closing the gap between funding needed to meet funding
recommended by Sir Derek Wanless's 2002 review (Wanless 2002)
of the future funding needs of the NHS as singly or in combination:
(i) cuts in other spending departments; (ii) increases in taxation;
and (iii) increases in NHS productivity. Our view was that the
last of these three was the most likely.
THE PRODUCTIVITY
CHALLENGE
The KF/IFS analysis indicated that the productivity
challenge facing the NHS for the three years from 2011-12 to 2013-14
amounted to around £21 billion by 2013-14. In other words,
while the Wanless review suggested that funding for the English
NHS would need to rise to around £126 billion by 2013-14
in order to deal with various demand and cost pressures, the likelihood
was that actual funding would be frozen in real terms at around
£105 billion.
Closing this gap would mean delivering productivity
improvements of around 6% a year, each year for three years (including
increases in productivity assumed by Wanless in his original review).
Sir David Nicholson has noted that such productivity improvements
are "extraordinarily challenging" (Health Select Committee
2010).
However, breaking down this gap reveals that
to manage demand and cost pressures there are key policy decisions
to be faced at national and local level over the next two to three
years.
THE COST
DRIVERS BEHIND
THE WANLESS
"SOLID PROGRESS"
SCENARIO
Applying Wanless's original funding review analysis
to the years 2011-12 to 2013-14 and assuming no real growth in
NHS funding it is possible to estimate the elements that constitute
the total funding gap of around £21 billion (see table 1).
Table 1
DECOMPOSITION OF THE ENGLISH NHS FUNDING
GAP: 2011-12 TO 2013-14
| Cost driver |
Explanation | Value (£bn)
|
|
| National Service Frameworks (NSFs) | Best practice in five NSF disease areas and extension to other areas
| 2.4 |
| New NSFs | Costs of new NSFs, improvements to existing NSFs and medical technology
| 9.6 |
| Waiting times | Costs of ongoing reduction in maximum inpatient and outpatient waiting times
| 1.4 |
| Clinical governance | Reducing hospital-acquired infections, adverse incidents and avoidable admissions
| 0.4 |
| Capital | Replacement of NHS estates, equipment and improved facilities, including ICT
| 1.6 |
| Demand drivers | Including health-seeking behaviour, demographic change and ill health in old age
| 1.8 |
| Real pay and prices | Growth in pay and prices over and above general inflation
| 3.5 |
| Total Increase | |
20.7 |
These cost drivers are broken down in more detail below.
— Real pay and prices: Wanless made assumptions
about increases in pay (a 2.5% real pay increase over and above
inflation) and the prices paid for products such as medicines.
These pay and price increases account for £3.5 billion of
the gap by 2014. More aggressive procurement could drive down
non-pay costs, while pay could be frozen. In fact, the Pre-Budget
Report effectively announced that the intention is for a cash
cap on public sector pay rises for two years from 2011 of just
1%.
— Demand drivers: demand drivers—such as
changes in population, people's health and health-seeking behaviour—represent
a relatively small component of the financial gap (£1.8 billion
by 2014). Evidence from new models of care in the community suggest
there are opportunities to reduce non-elective admissions to acute
hospitals and there may also be opportunities through referral
management to reduce elective demand.
— Capital: assumed growth in capital expenditure
to improve NHS infrastructure, etc accounts for £1.6 billion
of the gap in 2014, a relatively small component of the whole.
Part of the cost growth assumed by Wanless was based on the target
that 75% of beds would be in single en-suite rooms. While there
is ongoing investment in reducing the level of mixed-sex accommodation,
given the funding available it seems unlikely that a move to single
rooms on this scale could remain a priority. It can be argued
that much of this capital investment has already been met with
unprecedented increases in new buildings including in primary
care over the last decade (Wanless et al 2007).
— Quality improvement: Wanless made assumptions
that the efforts to reduce variability in service quality and
raise standards across the country in a range of disease areas,
primarily though the application of national service frameworks,
would continue. These quality improvements account for over half
of the funding gap (around £12 billion by 2014). The very
significant proportion of the increases in funding needed to roll
out national standards of care flags the importance of setting
clear priorities about where improvement has to happen and how
that can be done at lower costs. There may be scope to deliver
quality improvements through productivity gains and new ways of
working—with some improvements in quality also contributing
to savings in resources that can be redeployed to meet other demands
and priorities.
— Waiting times: Wanless assumed significant
reductions in waiting times—to a maximum of just two weeks
from GP referral to treatment in hospital by 2022-23. The NHS
has achieved a maximum 18-week referral to treatment waiting time,
four-hour A&E waits, and urgent cancer patients are seen within
two weeks. Given these achievements, it is arguable whether further
reductions are a priority (or indeed would be valued by patients
over and above other investments in improving quality of care)
and hence whether the estimated investment of around £1.4
billion by 2013-14 is necessary.
CONCLUSION
Although broad estimates, the decomposition of the £21
billion funding gap in table 1 suggest that taking decisions in
three key areas—freezing pay and pursuing more aggressive
procurement, not pursuing further reductions in waiting times
and reducing assumed growth in capital investment—could
reduce this shortfall by around £6.5 billion, to a total
of around £14 billion by 2013-14. This is equivalent to productivity
improvements of around 3 to 4% year, rather than 6%. However,
given the NHS record on productivity over the past 10 years, this
still poses a real challenge for the service.
REFERENCESAppleby, Crawford, Emmerson
(2009). How Cold Will It Be? Prospects for NHS funding 2011
to 2017. London: The King's Fund/Institute for Fiscal Studies.
Available at: www.kingsfund.org.uk/publications/how_cold_will_it_be.html
Health Select Committee (2010). "Public expenditure on health
and personal social services 2009: Uncorrected transcript of oral
evidence". To be published as HC 269-ii. Available at: www.publications.parliament.uk/pa/cm200910/cmselect/cmhealth/uc269-ii/uc26902.htm
Her Majesty's Treasury (2009). Securing the Recovery: Growth
and Opportunity. Pre Budget Report, December 2009. Cm 7747.
London: The Stationery Office. Available at: www.hm-treasury.gov.uk/d/pbr09_completereport.pdf
Nicholson D (2009). The Year: NHS Chief Executive's 2008-09
Annual Report. London: Department of Health. Available at:
www.dh.gov.uk/prod_consum_dh/groups/dh_digitalassets/documents/digitalasset/dh_099700.pdf
Wanless D, Appleby J, Harrison A, Patel D (2007). Our Future
Health Secured? A review of NHS funding and performance. London:
The King's Fund. Available at: www.kingsfund.org.uk/publications/our_future.html
Wanless D (2002). Securing our Future Health: Taking a long
term view. A final report. London: HM Treasury. Available
at: www.hm-treasury.gov.uk/consult_wanless_final.htm
Professor John Appleby
Chief Economist
The King's Fund
March 2010
| 
