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9th February 2009: Guest editorial - Matthew Swindells on the recession and the NHS

Professor Matthew Swindells follows his recent interview for HPI with a column looking at recessionary economics for the NHS.

The recession and the NHS

by Professor Matthew Swindells, managing director, health, Tribal group PLC

It is now clear to the NHS that life is going to get very difficult in the foreseeable future. It is just as clear that, unusually, it has warning of the choppy waters ahead and time to do something about it.

The recession in the NHS will be delayed.  A generous settlement has been given for the next two years – 5.5% for PCTs and (whilst tighter than they have become used to), real increases in the tariff for hospitals.  

The financial cycle
If the Government is right about the length of the recession, the public sector’s own financial constraints will be counter-cyclical.  As the real economy begins to pull out of recession, hard times will fall on the NHS.  The borrowing that the Government has undertaken will need to be to be reduced, and this will mean a squeeze on public sector spending.

’the NHS now accounts for up to 1/3 of the Government’s manageable expenditure’

The pre-Budget report forecast borrowing this year to double to £78 billion and £118 billion next.  It if then forecast to fall back to “borrowing only to invest” over the following five years.  Nick Timmins of the FT suggests that the NHS now accounts for up to 1/3rd of the Government’s manageable expenditure.

The lean years ahead
Consequently, the brunt of any attempt to correct excess Government debt has to fall on the NHS. That means that the NHS can reasonably expect that a two-year recession in the private sector will be followed by five years of constraint on public sector expenditure – perhaps returning to the near-zero real growth that the NHS saw in the early 1980s and the run up to the 1997 general election.  

Even this gloomy picture depends, of course, on the Government being right when it forecasts a short, deep recession for the economy.  If the recession is longer, the NHS faces either the prospect of an even longer period of constraint whilst the economy returns to balance - or, the nightmare scenario, of the Government reducing the growth in public sector expenditure whilst the rest of the economy is still in a down-turn

Next steps
So what should the NHS do?

The short answer is that the NHS has two years to put itself in a position to absorb real financial pressure.  Decisions that have been postponed around service reconfiguration, operational redesign or clinical practice changes need to be taken now.

Furthermore, the NHS needs to grasp the nettle of dealing with the rising growth in demand.

Three things are known to be true:
• The NHS delivers poor and inefficient services because the pressures to stop change - be it public outcry, political interference or workforce resistance - mean that we don’t do the right thing.
• The error rate in hospital and non-hospital services would be completely unacceptable in other industries.  Patients are harmed and huge sums of money are wasted.
• There is good evidence that disease and case management programmes reduce hospital admissions, reduce costs and improve patient experience; but we have confronted the organisational and cultural change that would be required to move the NHS from a sickness to a wellness service.

If the NHS doesn’t confront these challenges, the future is the re-emergence of deficits; cutting services; and a loss of public confidence.  

We know that it is much harder to make changes when you can’t afford the double running costs that well-managed change often required.  If the NHS doesn’t make the radical changes that are required to drive productivity and quality in the text two years, on a scale that hasn’t been seen in the past ten, it will be ill-prepared for the next ten.  

If the last ten years have shown the public one thing, it is that waiting doesn’t have to be synonymous with a national health service.  The public has, rightly, got used to being seen and treated quickly when they are in pain.  There has to be a real doubt as to whether they would accept a return to 24 hour trolley waits and 18 month waiting lists.  The stakes couldn’t be higher.