CONFERENCE KEYNOTE BLOG...How to fix the bust NHS business model

Posted: 22 September 2013 by Lord Norman Warner

I was supposed to talk about localism and innovation and new models of care that might spring from local processes. I certainly don’t doubt that the NHS and social care need local innovation, particularly around integration of care for the millions of people with chronic long-term conditions. I could chat agreeably for 20 minutes about integration, competition and new providers, building up services in the community instead of hospitals, consolidation of specialist services on fewer sites, more use of technology and patient self care, total place projects for better use of public expenditure. And many other worthy and worthwhile topics that need to happen.

However we have talked about these topics for years and in some cases for decades. What we never do is go for major change at scale and pace. We failed to do it in the years of plenty in the “noughties” and now we are in a decade of austerity. So, at the risk of depressing you, I want to talk about why we now need system wide change across the NHS – and rapidly – and question the deliverability of this purely through localism.

My starting point is that he NHS is living on borrowed time. Its business model is bust. It is like IBM and ICL several decades ago – pre-occupied with mainframes while the world was moving to PCs. It wasted the Labour years of plenty and as a government we didn’t ask enough of the NHS for the extra taxpayer’s money we pumped in. Now we have a political class that knows we cannot go on like this but is reluctant to engage with the public on what needs to be done. Contrast this with Enoch Powell who 50 years ago told the health professionals and the public that we should “tear down” the Victorian asylums. There are five issues I will briefly mention that make radical change inevitable – whatever the political obstacles. These are finance and the economy; NHS productivity; demography and disease profile; wrong business model; and bankrupt social care system.

The UK’s deficit reduction timetable has been extended to 2017 and is likely to be extended further. Given the cuts already made in other public expenditure – especially local government – the NHS cannot sensibly be ring fenced in future public expenditure rounds including the current one. A recent report from the Nuffield Trust suggests that the NHS faces a decade of austerity. Its findings are a £44-54 billion funding gap by 2021/22 for the NHS unless it delivers unprecedented productivity gains or the public finances improve sufficiently to allow NHS funding to increase significantly faster than inflation. Whoever governs after 2015 will have to face up to this economic and fiscal reality.

Let’s look at NHS productivity. The NHS is supposed to be in the middle of meeting the so-called “Nicholson” challenge of saving £20 billion in real terms over four years. This means making at least four per cent efficiency gains for four years on the trot and maintaining those gains in perpetuity. The NHS has never made a four per cent real terms efficiency gain in any one year let alone four years in succession. Such evidence as is in the public arena suggests that most of the savings made so far have been made through pay restraint, one-off items and top-slicing rather than significant lasting system change. The NHS productivity record in the years of Labour plenty hardly encourages reliance on the NHS driving productivity. According to ONS, between 1997 and 2007, NHS inputs went up by nearly 60 per cent and outputs went down by 4 per cent. Even allowing for quality improvements this is poor.

So what about demand? Bad news as well. A century ago there were 60,000 people in the UK aged over 85. There are now 1.5 million and this number doubles by 2030. Not only are we living longer – a cause for celebration – but very often we are living with a greater combination of diseases. Many of these conditions we have inflicted on ourselves through smoking, alcohol, bad diet and lack of exercise. There are now about 17 million people with long-term chronic conditions that cannot be “cured” but which have to be managed. This rising demand and complexity might be manageable if the NHS had adapted its business model to the changes in its core business since 1948. But it hasn’t.

Almost without people noticing, the NHS core business has become managing chronic conditions in an ageing population but with an acute medicine add-on set of services. However we have retained for the most part an expensive hospital dominated service delivery model with insufficient competent community-based services for managing the core business. Study after study reveals that 25-30 per cent of the people in acute hospitals should not be there. Yet our reward systems incentivise hospital care and people working in hospitals. We seem politically, professionally and managerially incapable of changing this failing business model at the pace now required. Nevertheless change it must because as a recent report by the Public Accounts Committee – under a Labour Chair – concluded every NHS organisation will have to make significant changes to patient services to become financially sustainable. When she’s finished with Google, Apple and Starbucks I hope Margaret Hodge will return to the NHS.

With an ageing population, more chronic conditions and the need for a more community-based approach, the NHS needs to integrate its services with a financially-robust means-tested adult social care system. Unfortunately the social care system is neither financially robust nor well-integrated with the NHS – other than in a few places. Publicly-funded social care has never been as well funded as the NHS.

The latest survey of Directors of Adult Social Services shows that by next April local councils will have stripped out £2.7 billion from their budgets since 2010. This is the equivalent of 20% of their budget. In nearly 90 per cent of councils you are only eligible for services if your condition is “critical” or “substantial.”

Demography will worsen matters year on year by 3 per cent or in financial terms by some £500 million a year. The consequence of not funding social care properly is plain to see in increased NHS emergency admissions of elderly people to hospitals and their longer stays in expensive and inappropriate medical wards of acute hospitals. This will not change with the new Care Bill or implementation of the Dilnot Commission proposals unless we plug the gap in social care funding and stop the gap opening up again. This means, in my view a transfer of resources from the NHS of the order of £2 billion and full funding of the Care Bill’s implementation.

The Economist summed up the state of the NHS in it edition of 6 October 2012: “The NHS is a strained system struggling to keep its costs in check and producing patchy and sometimes dreadful outcomes for patients where management falls short.” It is not well placed to cope with the years of austerity ahead. There is an urgent need for the kind of leadership that can force a consolidation of 24/7 acute services on fewer specialist sites; redeployment of resources - staff and money – to better community-based services integrated with social care; and rebuilding the funding of social care at the expense of the NHS. And I haven’t had time to talk about beefing up public health, conspicuously absent in the new Care Bill.

I do not see how local initiatives alone can drive the change required in what is a national risk-pooled health service funded centrally from taxation with all the Parliamentary accountability that involves. They can make a contribution but it must be very doubtful whether they can drive the necessary consolidation of specialist services on fewer sites and the extraction of resources from hospitals to fund better integrated community services without central political and professional leadership. I cannot see this leadership emerging before the 2015 Election. However, unless there is urgent action, I can see a financial train crash after the 2015 election. Afterwards I fear it will be panic stations as the money runs out, the Treasury takes charge and radical NHS funding changes are considered. It is worth bearing in mind that in the British Social Attitudes survey of 2012, 44 per cent of people thought that in 10 years time the NHS would not be paid for by taxes and free for all. The 1940s consensus on funding and running the NHS is breaking down. This is the context within which localism now has to operate.

 The Rt Hon Lord Warner of Brockley was Minister of State for Health, responsible for NHS reform in the last Labour government. He is one of the three members of the Dilnot Commission on Funding of Care and Support and a former Director of Social Services for Kent County Council.