Andrew Haldenby and Helen Rainbow: Reform is the only way to unlock value in the NHS budget

Andrew Haldenby is Director of Reform and Helen Rainbow is Reform’s Senior Research Officer.  The report “NHS reform: national mantra, not local reality” is available at www.reform.co.uk.

To say that the health service is big and complex is an understatement – it has the biggest budget in government (£90 billion in England alone and counting), a staff of 1.35 million (5 per cent of the entire workforce) and more political issues than any Secretary of State for Health can cope with.  But today’s annual NHS report by the think tank Reform suggests that the challenge of health policy reduces down to something manageable: redesign and improve services within a ceiling of 9-10 per cent of GDP.

There is a massive need for services to improve.  The quality of the NHS and the outcomes that it delivers remain behind other peer group countries.  We identify a “cradle-to-grave gap” – from infant mortality, to maternity services, to chronic care, to life expectancy.

This means a need for new investment in many areas – within a restricted level of funding.  Taxpayer funding is (and should be) limited for the next five years given the immediate pressures of a slowing economy and longer term concerns over economic competitiveness.  Greater productivity is the answer to this strategic challenge.

The Department of Health’s public view is that the current reform programmes (an internal market, patient choice, a national tariff for operations and so on) will meet this challenge.  Indeed in his first major speech on the NHS in January, Gordon Brown said that the NHS had achieved stages one and two of the Government’s agenda (extra capacity and reform respectively) and could now move on to stage three, which are the challenge of prevention and public health.

But this is a national mantra rather than local reality.  Our report breaks new ground in researching the actual progress of reform.  We find that the Government has indeed created an internal market, but it has become lopsided so that it favours producers rather than patients. Patient choice and independent sector treatment of NHS patients are in actual retreat.  The great majority of Primary Care Trusts (who commission services) have not embraced competition.

Some reform is happening – and bringing undoubted benefits of faster access and higher quality when it does – but it is sporadic and happening despite the system not because of it.  The lack of reform is partly due, in our view, to fierce opposition from many local managers and partly from a lack of national leadership from the Department of Health since the last general election.

Our report identifies two scenarios.  Current trends point to the negative of the two: “Managing NHS decline”.  In this scenario the sheer size of the costs of the system prevent new investment.  An outflow of talented staff would exacerbate difficulties.  Substandard quality and access are achieved for 11-12 per cent of GDP.

But in the positive scenario – “NHS opportunity” – reform delivers immediate access to excellent quality services at a cost of two per cent of GDP less (around £28 billion).  The key is an economic constitution.  There is much talk of a “constitution” for the service which could well lead to a statement of good intentions.  In fact the service needs a framework which gives every level of the service the duty to achieve value for money.  The details of the constitution are set out in detail in the report – suffice to say that it could deliver significant improvement within 18 months.

The challenge to the Government is to incorporate these findings into the current landmark review of the NHS, led by Lord Darzi, due to report in June.  The review’s terms of reference notes that it should “consider the case for a constitution of the NHS as the basis of a sustainable and lasting settlement that … enhances local accountability, secures value for money and protects the fundamental values that the NHS has always embodied”.  In our view an economic constitution is the right option.

The Government might also consider that if it does not increase the productivity of the NHS, it will face the challenge of increased costs running into tens of billions of pounds, just as the public finances are at their most stretched in the last fifteen years.

The challenge to the Conservative Party is to consider how an economic constitution can support its NHS (Autonomy and Accountability) Bill. The Bill does include a requirement for the new independent NHS Board to achieve “best value”; this could be the seed of the economic constitution.

It might also consider its opposition to changes in local hospital services (i.e. the defense of the “District General Hospital”).  In our view this is not tenable – as medicine becomes more specialised, England will move from 150 hospitals offering a full range of services to much fewer (perhaps 50).  But crucially a reformed NHS will see a much greater range of services – diagnostic, rehabilitation, and so on – provided in local areas, because they are both more effective and more efficient than traditional hospital-based services.  This is the positive future for community hospitals and community healthcare. Reform will see more local health services, not less.

Lastly it might consider its rhetoric against insurance-based health systems, such as those on the Continent.  Whatever funding system we choose, the NHS must start thinking like an insurer.  We need Primary Care Trusts to be thinking about their income, demand and costs five and ten years ahead.  This is the way in which the service will reorient itself towards increased prevention and better public health. If the NHS thinks of itself as an insurer, we will all benefit.

The challenge to the Liberal Democrats is to consider how an economic constitution can support its efforts to make services more locally accountable.  It is likely that health services will come under greater influence from local democracy in coming years, as health becomes more integrated with social services.  But is that enough to deliver value for money – and the radical change that local services require?

We hope today’s report will catch the attention of policy makers as the situation is urgent and is personally important to all of us.