NHS Costs Rise Faster than Income – Health Foundation Report Sounds the Alarm

We wrote last week about the issues around locum staff in the NHS. There were a couple of interesting comments, including one suggesting “we don’t need any outside help” in sorting out the issues around the spiralling cost of temporary staff. Well, I’d hate to disagree with our readers (particularly those who comment, as you are very much valued) but really, the evidence is that the sector is NOT managing this terribly well at the moment. So personally, it feels like you should be open to at least listening to anyone who might have some good ideas. (I should say the same comment hit the nail on the head in other ways).

Anyway, if anyone was in any doubt about the problems facing the NHS, then a report last week from the Health Foundation is required reading. It’s a very scary document, ignored by the politicians of course as no-one wants to face up to these issues in the middle of an election campaign.

Sarah Lafond, Anita Charlesworth and Adam Roberts have crunched a whole lot of data, looking at the accounts of NHS providers (trusts and Foundation trusts) from 2009/10 to 2013/14. And their conclusion is that productivity has slightly increased over that whole period, but most worryingly, has actually declined by 1% in each of the last two years (12/13 and 13/14).

That has led to the situation where in 2014/15, “the NHS as a whole (commissioners and providers) is projected to overspend its budget by £626m. This is despite the NHS receiving £250m of additional funding from the Treasury and a further £650m being transferred from planned capital investment to support day-to-day running costs.”

The report is also clear on the causes of this situation. “The deterioration in NHS provider finances is the result of their operating costs (staff costs, drugs costs, premises expenses, etc) rising more rapidly than the income they receive from the commissioners of care – clinical commissioning groups (CCGs) and NHS England. In 2013/14, NHS providers’ operating costs rose by 1.9% (£1.4bn) while their income only increased by 1.0% (£0.7bn).”

So despite all the good work being done by procurement people, their efforts are not proving enough to hold down costs in total, whilst income is not rising fast enough to compensate. The problems are greatest in acute hospitals; 76% are in deficit as of the third quarter of 2014/15.

The biggest driver of operating costs is staff costs. And the report identifies the biggest issue here – not surprisingly, it is temporary staff, and it is getting worse. “The rise in temporary staff was even greater (15.8%), resulting in spending on temporary staff growing by £1bn (27.4%) in 2013/14. Data for the third quarter of 2014/15 suggest that the pressure from spiralling temporary staff costs is continuing, with spending on agency staff alone rising by a further 30% for foundation trusts and 25% for NHS trusts.”

The report looks at statistical variations between regions and types of hospitals, and also changes over time. Depressingly, the analysis shows “that the relative efficiency and productivity performance of individual hospitals has changed very little over the last five years. Eighty-one per cent of the hospitals that were above or below average in 2009/10 stayed above or below average in 2013/14.”

Anyone interested in or worried about the NHS needs to read this. It also suggests that any good ideas Lord Carter and his team have are needed pretty urgently! Most significantly though, it calls into question the whole basis of the vaunted Five Year Forward View from Simon Stevens, published a few months back. That suggested a need for £8 billion additional government spending per year by 2020/21 (the end of the next administration), which has been "guaranteed" by some of the political parties.

However, that was based on the NHS making productivity improvement of 2-3% a year as well in order to meet increasing demands. If there was no efficiency increase, there would be “a mismatch between resources and patient needs of nearly £30 billion a year by 2020/21.”

But not only is the system failing to meet that 2-3% goal, productivity in the past 2 years is going backwards. So if that continued, the £30 billion funding gap could be ever greater!

All deeply worrying, and one simple prediction can be made with some certainty – whoever wins on May 7th, we are going to see headlines about “NHS in Crisis” within months of the election. Can procurement do more to help address these issues? Yes, I’m sure it can. But the current stats in the Health Foundation report suggest that despite the best efforts of many talented and hard-working people, it is not proving enough at the moment.

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