Public expenditure on health and care services - Health Committee Contents

Conclusions and recommendations

NHS resources beyond 2014-15

1.  In our view it would be unwise for the NHS to rely on any significant net increase in annual funding in 2015-16 and beyond. Given trends in cost and demand pressures, the only way to sustain or improve present service levels in the NHS will be to continue the disciplines of the Nicholson Challenge after 2015, focusing on a transformation of care through genuine and sustained service integration. (Paragraph 16)

Our general findings

2.  The evidence presented to the Committee demonstrates that the measures currently being used to respond to the Nicholson Challenge too often represent short-term fixes rather than the long-term transformations which the service needs. (Paragraph 19)

Sources of efficiency gains

3.  Although it is certainly true that public sector pay restraint has the short term effect of reducing the cost of service provision to the NHS budget, the Committee does not accept that can be regarded as a sustainable form of efficiency gain. Sustainable efficiency gain involves securing improved quality or value for a given expenditure - it is not delivered by simply suppressing staff salaries alone. (Paragraph 24)

4.  Still less is efficiency gain secured for the NHS by reducing the tariff paid by an NHS Commissioner to an NHS Provider. Tariff payments are internal transfers; they only result in efficiency gain for the NHS if the NHS Provider changes the way care is delivered. The Committee is concerned that it has received insufficient evidence of such service change by NHS Providers; it is also concerned that both NHS Management and ministers appear to be convinced that changing an internal transfer payment constitutes a form of efficiency gain. (Paragraph 25)

Integration of health and social care

5.  At a time when steadily rising demand for health and care services needs to be met within very modest real terms funding increases for the NHS and even tighter resource constraints on social care, the Committee remains convinced that the breadth and quality of services will only be maintained and improved through the full integration of commissioning activity across health and social care. (Paragraph 30)

A real-terms increase?

6.  Our working assumption is that annual spending on health services in real terms will show little if any variation above or below the 2010-11 baseline. (Paragraph 39)

Department of Health policy on underspends and budget exchange

7.  We recommend that the Department of Health, the NHS Commissioning Board and the Treasury review the operation of accounting policies and rules which apply to revenue and capital expenditure on health services. (Paragraph 51)

8.  The Committee is particularly concerned that the rules around budget exchange for NHS Providers are unnecessarily inflexible. Provided NHS Commissioners are subject to effective expenditure control, and provided also that Monitor is able to exercise effective control over recurrent deficits in NHS Providers, the Committee believes that the controls on the use of reserves by NHS Providers should be abolished to encourage Providers to invest in necessary service change. (Paragraph 52)

Meeting the Nicholson Challenge to 2015 and beyond

9.  While nationally driven initiatives have certainly produced some short term cost savings and may have produced some sustainable efficiency gains, the response to the Nicholson Challenge necessarily involves large scale transformational change. The Committee believes that the case for this transformational change needs to be better made and better understood. (Paragraph 54)

Nationally-driven changes: repeatable and non-repeatable savings

10.  The NHS will not be able to rely on the present rate of paybill savings once the present restraints on public sector pay are relaxed in April 2013. Furthermore, although pay restraint is undoubtedly key in the short term, it is neither prudent nor just to plan for sustainable efficiency on the basis that NHS pay continues to fall relative to pay elsewhere in the economy. Short term pay settlements will always reflect prevailing circumstances, but in the longer term NHS employees will share the same aspirations as employees elsewhere in the economy to participate in economic success. (Paragraph 68)

11.  The primary response of the NHS to the Nicholson Challenge should be to prioritise fundamental service redesign which will lead to better quality care for more NHS patients. Counting cuts to the NHS asset base as Nicholson Challenge savings risks distorting the programme's priorities. (Paragraph 70)

Provider-driven change: making efficiencies through the tariff

12.  We have highlighted in previous reports our concerns about the use of tariff reduction as an overall policy to drive efficiencies on the provider side. Tariff reduction does not encourage efficient behaviour on the commissioner side, and we have received little evidence to suggest that the tariff is being used intelligently to drive service transformation and greater integration. We fear that further turns of the tariff ratchet will lead to further salami-slicing of NHS Provider services in ways which prioritise expenditure reductions over imaginative service redesign. (Paragraph 78)

Transformational change: delivering greater integration

13.  Our principal concern is, however, the implication that there is a distinction to be drawn between "provider-driven change" and "transformational change". A successful response to the Nicholson Challenge would involve sustained, year on year efficiency gain in the health and care system at twice the long term average rate which prevails in the rest of the UK economy. The Committee believes that it is simply inconceivable that this performance can be delivered - together with the quality improvement that is also required - if planning proceeds within traditional silos. The commitment to "transformational change" needs, therefore, to embrace every aspect of the QIPP Programme including - in particular - the major existing providers. (Paragraph 82)

14.  At the current rate of progress, we doubt that the predicted savings through transforming and integrating NHS services will be fully realised by the end of the Nicholson Challenge period. Unless significant steps are taken to plan now for service redesign and integration, a significant opportunity to improve the effectiveness and quality of NHS healthcare will have been missed. (Paragraph 83)

Re-imagining care

15.  The heart of the Committee's approach is that the care system should treat people not conditions. Services should adapt to people, not the other way round. (Paragraph 86)

The Dilnot Commission

16.  The Government has accepted the key principles set out in the Dilnot Report with the key exception that it proposes that the cap on individual contributions should be set at £75,000 in 2017-18 prices (equivalent to £61,000 at 2010-11 prices). The Committee plans to review the implications of the Government's proposal to introduce the cap at a higher level than recommended by Dilnot, but it welcomes the Government's endorsement of the principles set out by Dilnot, and its commitment to introduce the necessary primary legislation. (Paragraph 88)

Integrated care

17.  We recommend that the new health and wellbeing boards should be developed as the forum in which all interested parties should evolve the future shape of health and care services in their area. (Paragraph 95)

18.  Against the background of a common desire to avoid further management upheaval, and recognising the dangers of an over-prescriptive approach, the Committee repeats its recommendation that health and wellbeing boards and clinical commissioning groups should be placed under a duty to demonstrate how they intend to deliver a commissioning process which provides integrated health, social care and social housing services in their area. (Paragraph 100)

19.  The Committee believes that the best way to provide services which treat people rather than conditions and services which adapt to people rather than causing people to adapt to services is to bring together funding, planning and commissioning of services around the forum of the Health and Wellbeing Board. All health and social care services in a given area should be included in this pooled process, including those which are developed to fund and implement the Dilnot proposals. (Paragraph 102)

Ring-fenced budgets

20.  The Committee recommends that the Government should introduce a ring fence to protect the current level of real-terms funding available to social care. This approach would ensure that resources were no longer treated as 'belonging' to a particular part of the system, but to the local health and care system as a whole. With agreement on local priorities, and with binding commitments on the amount of money available to fund them, a flexible, responsive health and care economy could be established which would use the total budget provided for health and care more efficiently than is the case at present with separate funding streams and different objectives. (Paragraph 106)

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Prepared 19 March 2013