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Editorial Wednesday 16 December 2015: The politics, philosophy and economics of the oncoming NHS financial car crash

The degree of choice for many of our political lords and masters is politics, philosophy and economics. The university of choice is of course Oxford.

It seems like a shame that history isn’t in there, but perhaps it would paralyse our homogenously-schooled jefes to be more aware that, as the Hegel-quoting Karl Marx observed of Louis Napoleon, ”all great world-historic facts and personages appear, so to speak, twice. He (Hegel) forgot to add: the first time as tragedy, the second time as farce”.

The next section of Marx’s observation bears reading: ”Men make their own history, but they do not make it as they please; they do not make it under self-selected circumstances, but under circumstances existing already, given and transmitted from the past. The tradition of all dead generations weighs like a nightmare on the brains of the living.

“And just as they seem to be occupied with revolutionising themselves and things, creating something that did not exist before, precisely in such epochs of revolutionary crisis they anxiously conjure up the spirits of the past to their service, borrowing from them names, battle slogans, and costumes in order to present this new scene in world history in time-honoured disguise and borrowed language”.

The ABC of PPE
A little more study of history would help leaders with perspective.

Equally, some anthropology would be beneficial to people who aspire to run things: I have previously noted that the NHS needs a chief anthropologist more than it needs any chief inspector. We are the way we are and behave as we behave due to many external factors: culture is prominent among them.

So I’d have history and anthropology in the mix too. Obviously, you’d then have a degree called HAPPE. Maybe we’d all benefit if aspirant national leaders had to learn to keep a straight face while announcing that they’re going to ‘read HAPPE’.

However, we are where we are. And at least politics, philosophy and economics offer a useful taxonomy through which we can assess the decisions that national leaders and system leaders are taking.

It’s a simple but useful question to ask ’which influence is winning out in this decision: politics, philosophy or economics?’

It is also often a blend of the three. The creation of the NHS was just such a blend.

2015 isn’t 1948, of course. Declines in mass membership of the main political parties and participation in general elections tell us a great deal about the general view of politics.

Consequently, we are often told that decisions are economic ones when they are political. And philosophy is too rarely mentioned, which is interesting, because philosophy speaks to motivation and meaning.

The founding idea of the NHS is philosophical: that healthcare should be provided universally and funded through general taxation, available on the basis of need rather than ability to pay.

There is an economic case for this, based in an understanding of the existence of public goods and their difference from private goods, and the idea is expressed politically, but the philosophical basis is undoubtedly linked to the public popularity of the NHS.

(I am rightly chid by Professor David Parkin that the drivers underlying the creation of the NHS include market failure, merit goods and the notion of equity, which is all true. I will just point out that the definition of merit goods seems to post-date the creation of the NHS.)

An historical study of the health section of the British Social Attitudes survey shows that the NHS retained strong public support even in times when its performance was far worse on waiting times and outcomes.

The Comprehensive Spending Review and all that
As I predicted in my recent piece here, the small print of the CSR settlement for health is full of nasty gremlins and does not leave us in Nirvania.

The settlements for public health and social care are particularly concerning (in his recent HSJ interview, NHS England’s Sun King Simon Stevens describes this as ”unresolved business”), but the whole health and social care funding situation is an unresolved mess.

There is excellent analysis from Sally Gainsbury, Judith Smith and Kieran Walshe, Richard Humphries, Claire Murdoch and Anita Charlsworth: I recommend them all.

The key point was cogently made by iridescent chief economist of the Kings Fund Professor John Appleby in October, and reiterated recently: funding as a proportion of GDP per capita is going to be squeezed as never before.

This comes on top of changes to the second state pension, which hit a final salary employer such as the NHS particularly hard.

While the NHS is going to have to continue providing everything it currently does, for an ageing and fattening population. At the same time as modernising how it works.

NAO, NAO, NAO, you don’t do it like that
This problem is becoming unavoidable, as the National Audit Office’s latest report on the NHS, which looks in depth at the acute hospital provider sector, (again) notes. Despite £1.8 billion in sundry bungs, 76% of acutes are currently in deficit.

The NAO note that ”the number of NHS trusts and NHS foundation trusts reporting a deficit rose by 80% between 2013-14 and 2014-15 … The average earnings before interest, tax, depreciation and amortisation (EBITDA) margin for existing NHS foundation trusts fell below the threshold used by Monitor to assess long-term financial sustainability … Acute trusts’ have increasingly planned to make efficiencies that are unsustainable … NHS trusts and NHS foundation trusts under financial stress continue to rely on cash support from the Department”.

More damningly (if unsurprisingly), it finds that ”the response by the Department, Monitor and the NHS TDA to cut trusts’ deficits might come too late to improve the 2015-16 financial position”. This is nothing more than the observation that if you owe the bank £10,000, it’s a big problem for you; if you owe them £10 million, it’s a big problem for them.

The fatal screw-up by system leaders was allowing more than 40% of providers to get financially distressed: once you’re over 40%, you’re heading to 50% and once past there, momentum takes away your ability to stop.

We’ll come back to momentum later.

But the most damning aspect is the NAO’s observation that ”the revisions and restatements to trusts’ 2015-16 financial plans undermine effective financial planning“.

The requirement to resubmit mid-year ‘stretch targets’ gets merited scorn, with the politely-phrased but deadly commentary that ”NHS trusts’ financial plans were resubmitted to the NHS TDA in September 2015, 6 months into the financial year. NHS foundation trusts’ financial plans were still under review by Monitor in October 2015, 7 months into the financial year. This unsettled planning period might make it difficult for NHS trusts, NHS foundation trusts, the NHS TDA, and Monitor to set and agree targets, measure progress and ultimately manage resources effectively“.

’I believe in Santa Carter’
The NAO is not putting its faith in the £5 billion Carter Review Fairy, noting that ”the productivity measures developed in this work are based on trusts’ reference costs from 2014-15. These were the average unit costs to the NHS of providing healthcare. However, there were concerns about the accuracy of the reference cost data in previous years. Concerns remain over the extent to which the cost savings identified apply to all trusts, and how the learning should be used by trusts in their financial planning“.

NAO reports aren’t traditionally harbingers of joy, but even by their standards, the conclusion is stark: ”we said in our November 2014 report on NHS financial sustainability that the trend of NHS trusts’ and NHS foundation trusts’ declining financial performance was not sustainable. At that time, trusts overall, including acute trusts, were in a better financial position.

"But since then, acute trusts’ financial performance has deteriorated sharply. And their financial position is forecast to worsen. With financial problems endemic, we repeat our view that these trends are not sustainable“.

A surreptitious hello to planning and scale
One of my many criticisms of the Lansley reforms that culminated on the 2012 Act was that they abolished system planning mechanisms at scale (imperfect as they were). It has been wonderfully instructive over the past few years to listen to colleagues who once berated and bemoaned strategic health authorities ruefully wishing for them to come back.

As they have done. Under the radar, and without fanfare.

They’re just not called strategic health authorities any more. Like everybody’s favourite Time Lord, they have changed their appearance by regenerating.

The (mainly) co-operating regional footprints of NHS England, Monitor and the TDA are one reincarnation. The success regimes, headed by former SHA bosses, are another.

And Devo-Manc represents a third approach to regional planning, albeit one that Sun King Simon Stevens told HSJ he doesn’t think will be replicated anywhere else any time soon. A key reason is that the DCLG legislation doesn’t make it clear that accountability is devolved alongside budget: ”it needs to be clear that the accountable officer line has moved as well and then I would not be accountable to Parliament for the use of the resources”.

The NHS funding argument is not one to which Simon is keen to return, he told HSJ: ”we’ve got a clear line of sight for the next three years, call it that, as to the funding envelope that we’ve got to work within. Obviously it’s a five-year settlement but my assessment is for at least the next three years this is the funding quantum we’ve got to go at … (any more) will be a decision for government. Our focus needs to be on the next three years… I don’t think anybody should think, ‘We’ll do 2016-17 then somehow somebody will write a new cheque for 2017-18’.”

Robbing Samantha to pay Jim
Simon’s HSJ interview also trailed the new planning guidance’s approach on multi-year and place-based funding, with a new ‘transition and transformation fund’.

The Sun King and his court have identified the Peter who is to be robbed to pay Paul in 2016-17. Peter is transformation, probably most notably in the New Care Models programme for Vanguards, headed by Samantha Jones: Paul is overspent providers, answerable to Jim Mackey of NHS Improvement (once it exists).

To be fair, this isn’t robbing Peter to pay Paul (well as it focus-groups with the Paul demographic).

It’s robbing Samantha to pay Jim.

This preceded an excellent scoop by Paul Waugh for Huffington Post, who found that the DH is forcing providers to take actual loans, as opposed to Public Dividend Capital, to remain solvent. There are such genuine cashflow problems that trusts are having to email staff to assure them they will get paid before Christmas.

Magnificent: NHS funding, courtesy of Wonga. The DH's transfer of bungs from PDC to loans was first revealed by Crispin Dowler of HSJ, back in March.

All bungs to indigent providers count against DH’s departmental expenditure limit (the nation’s second-favourite DEL), so it doesn’t make the ‘busting the DEL’ problem go away.

The issue, with thanks to knowledgable correspondents on Twitter, is that straight loans get repaid to DH fully - capital and interest, while Public Dividend Capital only becomes an interest commitment and the capital is rarely required back. There is a higher interest charge, as PDC is viewed as being like equity.

This is some stupid Jesuitical bollocks, right here. As Paul Waugh notes, smarter DH heads don’t actually expect to be paid back and using loans is about trying to “disincentivise deficits” (i.e. appear tough to the Treasury).

Conceivably, this may be a ‘state aid’ thing: competition expert Andrew Taylor notes that the argument could be that if distressed trusts can repay interest, then it’s not a state aid subsidy.

Assuming this is what the gnomes of Whitehall are thinking, just imagine their surprise once they realise the NHS is a form of state aid to citizens. Their heads might explode.

Like I said, this is stupid Jesuitical bollocks. Not to mention needless complexity.

If we nip back to the economics bit of the politics-philosophy-economics framework, it’s probably worth remembering that the NHS is basically a bunch of money to pay for healthcare.

Farting around with loans versus PDC does nothing to address the root cause of the problem: the amount of money that politics and philosophy appear willing to put into the economics of the NHS is not sufficient for all the things we are asking the NHS to do.

This doesn’t really come down to the NHS being intrinsically inefficient, as some political half-wits will have you believe. The NHS is probably a bit inefficient in many places, hugely inefficient in a handful and tremendously efficient in others. Sorting out those inefficiencies will require a major and sustained investment in improving management and culture.

Hands up for that one?

Yup, thought so.

”So it’s all about the dosh?”
In fact, NHS productivity has been increasing, as the latest ONS data show. The main reason for this is because of low input growth: that important GDP per capita I mentioned earlier.

As Simon Stevens’ former special advisee Frank Dobson succinctly put it at the end of his civil service briefing as New Labour’s first health secretary, ”so it’s all about the dosh?”.

It’s not always all about the dosh, but it is at the moment.

Big is beautiful
In a system that doesn’t have anything that looks like a detailed operational plan for delivering the savings, we can safely expect magical thinking and a retreat into traditional ‘good ideas’, however discredited past iterations may have been shown to be.

The advantage of being big - scale and mergers is - just such an idea.

Some is being nudged in the forthcoming planning guidance for primary care by NHS England, as Simon revealed to HSJ.

This is essentially pragmatic: GP chains and federations have been doing this under the public’s radar for some years, driven mainly by low income growth and the need to have an operational scale that can give them serious negotiating power to argue with CCGs. (Wholly coincidentally, CCGs want to be bigger to deal with this, and are complaining about NHS England’s informal ban on mergers.

The history of organisational mergers in the NHS is not a reassuring one.

Whether you prefer big or small commissioning organisations or health authorities is largely a mixture of personal taste and theology: the progressive ones with good relationships and networks did well; the others didn’t.

There is empirical evidence on mergers in the NHS provider sector: they mostly fail and destroy value (a successful emulation of 70-90% of private sector mergers). People have been warning about this for years. History and anthropology lessons are needed, as well as economics from the real world, for mergers to stand a chance.

Driving too fast
Health Policy Insight readers are not only more charismatic then average, but also 76.93% more responsible, and thus have probably never ever driven at speeds above the legal limit.

I may or may not have driven extremely fast (officer), and there remain a few bits of the German autobahn network without speed limits, so I could have acquired this experience legally.

Anyway, here is the point.

Even if you are a reasonably skilful and alert driver, driving in a well-maintained, properly-loaded car in appropriate road and weather conditions, when on a public highway you reach a speed where you know you are driving too fast.

The limit you’ve reached isn’t about your losing concentration or making a mistake: any reasonable driver controls for all that. The limit’s about the mistake another driver makes, and your ability to react in time to avoid an accident.

The NHS is currently driving very fast, with the cross-country routes, slip roads and laybys closed, in a vehicle loaded to capacity: its credit card to buy more fuel is maxed out.

At some point, somebody on the road is going to make a mistake.

Oh, and the NHS needs to take clinicians with it if the major changes planned to provision are to stand a chance of working. Just after an unnecessary car-crash of a negotiation about junior doctors’ new contract went from being slow-motion to high speed, thanks to the appalling negotiating skills of both sides.

You did get your brakes serviced, and check your tyres?


Fasten your seatbelt. Momentum means that objects in high-speed motion can be difficult to stop safely.