The NHS Malthusian Challenge — Purchasing and Beyond (Part 1)

We are delighted to publish - in three parts - a very insightful paper from a new guest author, Adrian Fawcett, Chairman of Healthcare Cost Recovery, the UK's leading financial reimbursement specialist for the NHS.


The NHS is unavoidably in the midst of the deepest and longest financial squeeze it has witnessed in its 65 year history. This article seeks to comment on some of the challenges faced as we move into a new era of unprecedented demand on services, coupled with increasing requirements for procurement professionals and frontline staff to do ‘more for less’ and ‘do differently’.

Every 36 hours the NHS deals with over 1 million patients. Like any service, free at the point of use and deemed universally attractive by those needing it, a natural point of excessive strain eventually comes to the fore. In this case the NHS’s ability to provide care for an increasingly growing and complex ageing population across the scale and coverage now demanded of it.

Looking forward, future financials also paint a grim picture; the NHS already faces a funding gap of up to £2billion - about 2 percent of its budget for the next financial year - and more than 44 percent of NHS trusts are expecting to end the year in a combined deficit. In addition, 64 of England’s 145 hospital trusts are reported to expect to end the year in the red with ‘black hole’ predictions.

Longer-term predictions provide little comfort too, with The Nuffield Trust estimating funding gaps of up to £54 billion by 2021 adding to the some £20 billion in the year in hand. Cumulatively the annual deficits equate to a staggering £130 billion funding shortfall in the next five years alone.

The "Malthusian Challenge" (where geometric growth of a population outstrips the resources available to it), if it continues in UK healthcare as it has been and is doing, looks set to simply render the NHS with a future inability to deliver unless changes take place. This is not any fault of any one government, but a dramatic population matter, set by society. With a UK economy that has not, in real terms, progressively grown by even 3 percent compound during the same time that we have seen NHS spend for the 15 years to 2010 rise by 4.9 percent a year compound -- far outstripping the growth of our commercial economy and GDP -- it is the simple economics and evidence that fiscal policymakers will have to alter, as society’s demand for healthcare is outstripping the economic growth they are providing.

In context, in today's value of money, the NHS has a budget of over £112 billion - compared with what was the equivalent of £9 billion in 1948. That's a 12-fold real-terms increase. However, the Malthusian dynamics are that the UK population has both grown enormously over the same time period and amazingly now also has a life expectancy that is, as near as anything, 25 years longer than in 1948 and more healthcare demand and expectation as well. An older population with multiple health issues, fragility, mental health and long term conditions and not the infectious diseases that were principally on the handling agenda for the NHS of 1948.

On a daily basis, through osmosis of emotive media, the taxpayer public absorbs bleak forecasts around a lack of funds, exorbitant hospital waiting times and a crisis in the supply of frontline staff and equipment alike. Combine this with the odd story thrown in of the a Trust or two in special measures and it is easy to see how a vicious cycle of lamenting cynicism can develop with little regard to the good work of a system which often makes the British healthcare market the envy amongst some international peers.

And so with the above in mind, we come onto the topic of procurement and the requested saving of £1.5 billion by 2015/16 by the ‘Spending Round Settlement’. In reality it means that the NHS needs to have implemented a zero percent inflation policy for the last 2 years onwards out of its total net expenditure (resource plus capital, minus depreciation) – reported at £113.035 billion (2014/15). Leading voices however call for this figure to be much higher at savings closer to £5 billion.

Looking back, bodies such as The National Audit Office recorded waste of up to £500 million on the procurement of just basic provisions via inefficient procurement methods. In isolation exorbitant tendering processes are said to cost the NHS more than £1 billion a year. The Better Procurement, Better Value, Better Care sets out a commitment to establish a national Spend Analysis and Price Benchmarking service to pioneer new services which will provide uniformity, reinvigorate and futureproof across the c£20 billion+ a year which the NHS spends on consumables expenditure (c.30% percent of its total operating costs).

In part 2, we will look further at what needs to be done to redress the balance.

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Voices (2)

  1. Stephen Heard:

    It might be interesting to compare the success, or not, of the Gershon £20bn savings called for in his review in 2004 and the Nicholson challenge in 2009 which also called for £20bn efficiency.

    The Gershon review purported that the savings could be made by improving procurement, standardising policies and procedures and simplifying, standardising and sharing support services such as HR, IT and finance in “back offices” with these initiatives to be benchmarked across the public sector.

    The parameters of the “challenge” by Nicholson to the NHS collectively add up to a demand by Nicholson for the NHS to find £20 billion in “efficiency savings” by 2015. The claim is that better ways of working rather than more spending must be found, amidst a warning that if the challenge were not met, either more money would be needed or fewer desirable results would be achieved.

    Similar or not? Double counting maybe or just coincidence?

  2. Mark Lainchbury:

    You really want to save the NHS now – Simple….
    Demand the government make Drugs & Medical devices (Class 1, 2,& 3 ) 0% Vat rated
    and stop them dragging back 20% of that c£20 billion into their clutches.

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