MEMORANDUM
BY THE
KING'S
FUND (PEX 12)
1. 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.
2. This submission focuses on the key issues
identified in the preamble to the inquiry's terms of reference.
In doing so, it draws on three reports recently published by the
Fund:
— How cold will it be? Prospects for NHS
funding 2011-17 which was published with the Institute for Fiscal
Studies and considered the implications of the economic crisis
for NHS funding.[1]
— Securing good care for more people: Options
for reform which updated the review of social care funding carried
out for the Fund by Sir Derek Wanless in 2006.[2]
— Improving NHS productivity: More with
the same not more of the same which re-visited the likely funding
prospects for the NHS and the productivity improvements it will
need to deliver in the next few years.[3]
SUMMARY
3. Despite the government's pledge to protect
the NHS budget, both services face significant financial challenges
over the next few years.
— The NHS is facing the biggest financial
challenge in its history. Although it will receive a small real
terms funding increase in the Spending Review, it will need to
deliver annual productivity savings of £14 billion—equivalent
to 3-4% of its budget—by 2013-14 (and probably beyond this
date) to maintain quality and avoid cutting services.
— This does not necessarily mean that the
answers lie in slashing budgets, cutting services for patients
or sacking staff. There are significant opportunities for the
NHS to improve productivity, particularly by reducing clinical
variation.
— There is a significant risk that implementing
the reforms set out in the government's health white paper will
distract attention from delivering the productivity improvements
needed. This risk must be managed to ensure that work to improve
quality and productivity is not sidetracked.
— Inevitable cuts in social care budgets
are likely to result in local authorities increasing charges and
restricting services. This will further increase unmet need and
is likely to increase costs to the NHS by increasing the number
of avoidable hospital admissions and delayed transfers of care.
— Progress in integrating health and social
care services has been patchy, despite emerging evidence that
it offers significant opportunities to deliver better outcomes
and financial savings. It is essential that the NHS and local
authorities do more to pool resources and align services locally.
— In the longer term, there is a compelling
case for considering how the combined public expenditure on the
NHS and social care of £121 billion could be better planned
and allocated.
THE PROSPECTS
FOR NHS FUNDING
4. The government has pledged to increase
health spending in real terms in each year for the rest of the
parliament. This means that, after a decade of unprecedented growth,
the NHS budget is likely to increase slightly above the rate of
inflation for the next few years. Based on current inflation estimates,
an increase of around 1% in real terms would provide around £3
billion a year in cash funding for the NHS.
5. To put this into context, a 1% real increase
compares with average real terms growth of 4% since the NHS was
established and 7% since the turn of the century. With total (public
and private) health care spending having increased as a share
of national income by nearly three percentage points over the
last 10 years to almost 10% by 2010-11—taking spending close
to the EU average in 2006—this will mean that it will decline
as a proportion of national income for the first time in many
years, as the economy starts to grow more quickly than the increase
in NHS funding.
6. Compared to inevitable spending cuts
in other Whitehall departments, a real terms funding increase
will seem generous. Nevertheless, a number of factors need to
be considered in assessing the true impact of any increase in
the NHS budget:
— The additional costs associated with
demographic change are likely to equate to annual real terms increases
in the NHS budget of around 1% each year.
— There is some uncertainty about the baseline
for the Spending Review. While the last Comprehensive Spending
Review set the NHS budget for 2010-11 at £109.8 billion,
the most recent Department of Health annual report stated that
planned expenditure is £105.8 billion.
— There is also uncertainty about the fate
of the £1 billion surplus the NHS is planning to carry over
into 2011-12, following reports that the Treasury may claw back
the £1.5 billion surplus accrued in 2008-09.[4]
— Despite the two year freeze on public
sector pay for anyone earning above £21,000 a year announced
in the Emergency Budget, the NHS pay bill is likely to increase
by at least £750 million a year due to increments built into
most NHS contracts.
— The increase in VAT to 20% from January
2011 is likely to cost the NHS an additional £250 million
a year.
— There will be costs associated with implementing
the proposals put forward in the Government's health white paper;
one estimate puts this at £2-£3 billion.[5]
7. These factors mean that although the
NHS will benefit from a small real terms increase in funding and
a far more generous settlement than most areas of spending, its
purchasing power will in fact be eroded.
THE SCALE
OF THE
PRODUCTIVITY CHALLENGE
8. In his report to the Treasury in 2002,
Sir Derek Wanless set out three potential funding scenarios based
on a number of assumptions about future demand, supply and costs
of health care.[6]
An update to his report published by The King's Fund in 2007 showed
the NHS progressing more or less in line with his middle scenario—"solid
progress".[7]
9. Continuing to meet the "solid progress"
scenario would require funding of £126 billion in 2013-14
(at today's prices). Without real terms increases in the NHS budget
and improvements in productivity, this would leave a funding shortfall
of up to £21 billion by 2013-14. Closing this gap would require
annual productivity gains of up to 6% a year.
10. The Wanless projections still stand
as the most sophisticated attempt to estimate future health care
funding needs. In our report Improving NHS productivity: More
with the same not more of the same we returned to his original
analysis to assess whether the assumptions behind his estimates
still hold. In light of the progress made in improving health
outcomes since 2002, the pressure on the public finances and policy
statements made by the coalition government, we suggest his assumptions
can be revised in three key areas:
— Pay and prices; Wanless assumed year-on-year
pay increases for NHS staff of 2.5% above inflation. The government's
decision to freeze pay for public sector employees earning more
than £21,000 removes much of this cost pressure. In conjunction
with restraining prices paid for pharmaceuticals, this could reduce
costs by up to £3.5 billion a year.
— Waiting times; given the progress made
in cutting waiting times in recent years, the reduction in the
number of targets and changes in performance management announced
by the government, further reductions in waiting times will not
be a priority for the foreseeable future. Not pursuing further
reductions in waiting times could reduce costs by around £1.4
billion a year.
— Capital investment; there are strong
arguments that making better use of existing facilities should
be the priority, rather than further increasing capital investment
in new facilities. Reducing this investment and scaling back the
drive to provide hospital beds in single en-suite rooms could
reduce costs by £1.6 billion a year.
11. Revising Wanless's assumptions in these
three areas could reduce costs by around £6.5 billion a year.
This reduces the productivity gap from up to £21 billion
to around £14 billion by 2013-14, broadly in line with the
£15-£20 billion in efficiency savings the NHS has been
challenged to meet over the same period by Sir David Nicholson.
Assuming the outcome of the Spending Review is a small real terms
increase in funding, this suggests the NHS will need to deliver
productivity gains of 3-4% a year in order to maintain quality
and avoid cutting services.
MEETING THE
PRODUCTIVITY CHALLENGE
12. The size of the productivity gap leaves
the NHS facing the biggest financial challenge in its history.
To put it into context, the Office for National Statistics estimates
that health care productivity fell by an average of 0.3% a year
between 1995 and 2008.[8]
Delivering the productivity improvements needed will be even more
challenging now that, over the same period, the NHS will also
be required to implement the reforms set out in the health white
paper and respond to the structural changes this will entail,
including the abolition of PCTs and SHAs.
13. However, this does not necessarily mean
that the answers lie in slashing budgets, cutting services for
patients or sacking staff. Numerous studies have highlighted the
opportunities to improve productivity in the NHS—the focus
must now shift to execution and implementation. The NHS will need
to carefully select the strategies which, together, will produce
more value from similar resources, not deliver the same for less.
14. The most signi?cant opportunities to
improve productivity will come from focusing on reducing variations
in clinical practice. For example, the NHS Institute for Innovation
and Improvement has estimated that £4.5 billion in productivity
improvements could be delivered in acute hospitals alone by bringing
performance across the board up to the level currently achieved
by the top quartile. Other opportunities include:
— Tackling ineffciencies in support services
and back-office functions. For example, estimates suggest that
more efficient procurement delivered through the use of national
framework agreements could release £240 million a year.[9]
— Commissioners have a vital role to play
by reducing spending on low-value interventions and redesigning
care pathways (especially for people with long-term conditions)
to avoid unnecessary hospital admissions. With around two-thirds
of hospital bed days accounted for by emergency admissions, significant
gains can be made here.
— NHS employers should increase workforce
productivity by improving staff performance, tackling sickness
absence and adopting more flexible ways of working. For example,
savings of up to £400 million could be made by bringing the
performance of weak GPs up to the standard level.[10]
15. Delivering productivity improvements
on the scale needed will require action at all levels of the system,
especially within clinical microsystems—the frontline teams
delivering care to patients who have the most important role to
play in reducing clinical variation. It will therefore be essential
to continue investing in developing leadership and change management
capabilities at all levels of the NHS.
SOCIAL CARE
EXPENDITURE
16. Public expenditure on adult social care
has increased by over 50% in real terms since 1997. However, this
has not kept pace with the impact of the ageing population, increasing
numbers of people with complex care needs and rising expectations
about the quality of services. As a result, unmet need has increased,
with almost three-quarters of English local authorities now restricting
services for older people to those with "substantial"
or "critical" needs.
17. With the number of people over 85 set
to double by 2026 to almost two million and care needs for all
adults with learning disabilities forecasted to rise by 3-8% a
year, services will come under even more severe pressure in the
years ahead. Keeping up with demographic pressures alone would
require increases in the social care budget for older people of
around 3.5% a year over the next few years. Looking further ahead,
our report Securing good care for more people, estimated that
the cost of the current social care system left unreformed will
increase from £6.4 billion in 2010 to £12.1 billion
in 2026.
18. Unlike the NHS, social care expenditure
will not be protected from cuts in the Spending Review. The Institute
for Fiscal Studies estimates that some departments are likely
to suffer real term reductions of up to 33% in their budgets by
2014-15. It therefore seems likely that grant funding for local
authorities will be cut significantly, on top of the £1.165
billion cut announced by the government earlier this year. With
an increasing proportion of local authorities' spending on adult
social care now funded from Council Tax revenues—39% on
average and as much as 80% in some areas—the Government's
commitment to freeze Council Tax for at least a year will leave
local authorities even less room for manoeuvre.
19. It is also important to consider this
in the context of costs met through the benefits system including
£3.8 billion currently spent on Attendance Allowance and
£9.8 billion on Disability Living Allowance. Expenditure
on these benefits will be accounted for in the DWP's Spending
Review settlement.
20. Informal intelligence suggests that
most local authorities are planning reductions in their overall
budgets of around 25% over the three years from 2011-12. Many
have already achieved significant efficiency gains and will find
it difficult to achieve further savings without impacting on front-line
services. How far they can cushion the impact of cuts in grant
funding on social care budgets will vary widely and depend on
local factors.
21. Some authorities are likely to consider
increasing user charges, especially for non-residential services,
and the relatively small number of councils still providing care
for people with "moderate" needs are likely to tighten
their eligibility criteria. This will further increase unmet need
and is likely to increase the number of avoidable hospital admissions
and delayed transfers of care, working against the efforts of
NHS to reduce the use of expensive acute care.
THE INTERFACE
BETWEEN HEALTH
AND SOCIAL
CARE
22. Although greater integration between
health and social care services has been a policy objective for
more than three decades, progress up to now has been limited to
a small number of local authority exemplars and examples of good
practice. Yet, emerging evidence suggests that care services have
an important role to play in delivering savings to the NHS by,
for example, enabling people to continue to live at home and preventing
emergency admissions to hospital.
23. For example, the previous government
piloted a number of Partnerships for Older People projects (POPPs)
which were based on proactive case management and flexible use
of health and social care budgets. While the savings estimates
have a margin for error, the evaluation of the projects showed
that, as well as improving quality of life for participants, every
£1 spent on POPP services delivered a saving of £1.20
in emergency bed days.[11]
24. Torbay's Integrated Care Project comprises
five integrated health and social care teams, focused on meeting
the needs of older people, operating with pooled budgets and organised
in localities aligned with general practice boundaries. Recent
analysis of the project highlighted low rates of emergency admissions,
emergency bed day use and discharges into residential care compared
with other areas in the South West. As a result of its work, the
average number of daily occupied hospital beds fell from 750 in
1998-99 to 528 in 2008-09.
25. Given the severe pressure on health
and social care budgets over the next few years, it will be essential
that the NHS and local authorities do more to work together to
pool resources and align services. The cost of not doing so would
be significant cuts in social care services, increased costs to
the NHS and worse outcomes for patients and service users.
26. In the longer term, there is a compelling
case for considering how the combined public spending on the NHS
and social care of £121 billion could be better planned and
allocated. It is striking to note that the additional expenditure
required each year up to 2015 to gradually phase in The King's
Fund's "partnership model" for funding social care—which
would be far more generous than the current system and significantly
reduce unmet need—would represent less than 1 per cent of
the NHS budget.
27. It remains to be seen whether the reforms
set out in the government's health white paper will encourage
greater integration between health and social care services. The
abolition of PCTs and consequent loss of co-terminocity with local
authorities is likely to undermine progress made in building relationships
at the local level. Nevertheless, the creation of local health
and wellbeing boards—which will require a different approach
driven less by top-down direction and more by locally determined
solutions—could create an opportunity to improve on the
current situation.
September 2010
1 Appleby J, Crawford R, Emmerson C (2009): How
cold will it be? Prospects for NHS funding 2011-2017; The
Kings Find/Institute for Fiscal Studies. Back
2
Humphries R, Forder J, Fernandez J-L (2010): Securing good
care for more people: Options for reform; The King's Fund. Back
3
Appleby J, Ham C, Imison C, Jennings M (2010): Improving NHS
productivity: More with the same not more of the same; The
King's Fund. Back
4
http://www.hsj.co.uk/news/finance/dh-denied-access-to-15bn-unspent-cash/5019085.article Back
5
http://www.bmj.com/content/341/bmj.c3843.extract Back
6
Wanless D (2002): Securing our future health: Taking a long
term view; HM Treasury. Back
7
Wanless D, Appleby J, Harrison A, Patel D (2007): Our future
health secured? A review of NHS funding and performance; The
King's Fund. Back
8
www.statistics.gov.uk/articles/nojournal/healthcare-productivity-2010.pdf Back
9
NHS Institute for Innovation and Improvement (2010): Better
care, better value indicators Q1 2009-10. Back
10
McKinsey and Co (2009): Achieving world class productivity
in the NHS 2009-10-2013-14: Detailing the size of the opportunity;
available at www.dh.gov.uk/prod_consum_dh/groups/dh_digitalassets/documents/digitalasset/dh_116521.pdf Back
11
Personal Social Services Research Unit (2009): National evaluation
of Partnerships for Older People Projects. Back
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