There is trouble ahead…

King's Fund webpage for its latest - deeply gloomy - report on 'The NHS Productivity Challenge'.

King’s Fund webpage for its latest – deeply gloomy – report on ‘The NHS Productivity Challenge’.

The King’s Fund held a breakfast meeting this week to launch a new report on ‘The NHS Productivity Challenge’. The organisers may have felt that people would need some nice Danish pastries to pick them up after the bad news that it contained.

Five years ago, the think-tank worked with the Institute for Fiscal Studies to work out whether the NHS was on course to make the mix of public health, treatment and productivity improvements that former banker, Sir Derek Wanless, had calculated it would need to make to live within its funding settlement.

It warned that it wasn’t, and that the gap between flat funding, rising costs, and rising demand was likely to reach £20 billion by 2015-16. In response, Sir David Nicholson, the just-retired chief executive of the NHS, challenged the NHS to find quality, innovation, productivity and prevention improvements to bridge the gap, without resorting to the rationing, longer waiting lists, and poorer services of past contractions.

Now, the fund has been back to see how the NHS has been getting on. And, in effect, it has concluded that it is going to fail the ‘Nicholson Challenge.’ Although the health service has managed to find significant productivity savings, most of them have come from holding down what hospitals are paid for treatment, wages and management costs.

These sources of savings are almost exhausted (Unison’s health conference has just voted for strike action over another year of 1% pay increases for just some of its members). So the King’s Fund argues that a cash crisis is now more or less “inevitable” by 2015-16; or possibly sooner (Monitor and the NHS Trust Federation reckon that a quarter of the trusts they regulate are already under severe financial stress).

So what next? The fund chief economist, John Appleby, acknowledged the answer might be nothing. But if it is nothing, then trusts will fail – chaotically, since “there is no failure regime and no sign that anybody wants to develop one” – leading to ad-hoc and emergency service reconfigurations (of the kind so bitterly opposed in South London).

As an alternative, the King’s Fund is pushing for an injection of funds to give health economies time to plan for change and to rescue “otherwise viable” trusts in immediate financial trouble.

So far, the government has shown no indication that it is willing to listen to this argument; and even if it does come up with some money, there are no guarantees that it will do the trick. The big ideas for saving really significant sums – such as keeping lots of people out of hospital and reorganising expensive services into fewer centres – are unproven (see post below) and difficult to secure (that popular opposition to change in South London, again).

Meanwhile, opposition figures such as Lord Warner and Frank Field are starting to put forward the idea of bridging the gap between flat funding and rising demand by simply increasing funding.

It’s far from clear that the money they want to put in (£10 a month, or a 1% increase in national insurance contributions respectively) would be anything like enough; and there are plenty of problems with the idea of hypothecated taxation, and with letting the NHS consume an ever-larger proportion of whatever government spending will be left by the time George Osborne leaves the Treasury.

But it looks like clever politics. Labour can claim its “think the unthinkable” thinkers have thought of something, while the government will either be dealing with a full on cash-crisis or with a set of planned service changes that will look much like the same thing to the communities on the receiving end of them.

A final message from the King’s Fund, and from the management organisation the NHS Confederation, is that politicians of all stripes need to sign up for an agreed package of changes that might lead to financial sustainability down the line. But of that there is even less hope than there is of averting a cash crisis.


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