Editor's blog 22nd December 2008: a profit without honour

Blimey, I get ill for a month and the NHS just sort of explodes.

Hello, and sorry to have been away for so long. The flu that is currently causing big problems to hospitals and ambulance trusts hit my family and then me quite early and quite hard. I am now back, and what a month it's been.

I’m pleased to also present a festive Maynard Doctrine, as well as which I will try to summarise what’s been going on, even if some of it is hard to believe.

A profit without honour
Firstly, the NHS in England has generated a big financial surplus: £1.8 billion, on current estimates. The DH's figures in response to the Health Select Committee's questions revealed that part of this was from a capital underspend of £2 billion, some of which represents proposed downscaling of PFI projects. But still, it’s quite a tidy profit. OK, maybe not that impressive of a £96 bilion budget …

The initially-expected level of surplus was £916 million for 2007-8. However, the figures running up to the end of Q2 show the NHS on course for a surplus of £1.8 billion.

However, the DH is telling the service that they can spend just £400 million of the surplus in each of the next two financial years.

The Pre-Budget Report has made it clear that in 2010-11, the Treasury will be reducing public spending by £5 billion – and the NHS’s share of this, if proportionate to their share of public spending, could be as much as £2 billion.

Fiddling with funding
The funding allocation rules for PCTs in 2009-10 have also been changed. Firstly, the DH and SHAs will inhibit the planned average funding rise of 6.4% in 2009-10 and 2010-11, so that PCTs only see an average increase of 5.5%.

London – none shall close
Secondly, changes in the allocation formula for funding have created a new generation of winners and losers, with London’s PCTs particularly hard-hit. This is interesting timing, given that they have just agreed as a group to fund a bale-out for the capital’s ten most indebted hospitals.

The arrangement by London PCTs’ chief executives, brokered by NHS London strategic health authority, will mean - if all the 31 London PCT boards back the strategy – that £327 million of debt would be written off, providing that the deficit hospitals (mainly in the south-east and north-west of London) demonstrate that they will be able to break even in future.

Under the deal, London’s PCTs will relinquish 1.3 per cent of their planned budget increases over the next two financial years, and will also lose their £304 million surplus (which NHS London SHA top-sliced from their funding in 2007-8).

Tough times for hospitals
Meanwhile, despite PCTs getting a 5.5% increase in funding, the NHS 2009-10 Operating Framework set a much lower level of growth in the Payment By Results national tariff for paying hospitals: a basic 1.7 per cent increase next financial year and no more than 1.2 per cent the year after. Under a new scheme to reward quality, hospitals hitting the (yet to be agreed) targets will be able to earn a further 0.5% on top.

The proposed new tariff has been published for road-testing, despite the admission that certain projects originally in its remit, including an ‘end-of-life’ tariff which would have helped the commissionineg of new services, cannot be achieved.

Can the NHS cope financially? Yes, say Hewitt, McKeon and NAO. No, suggest Dorrell and Moyes
Opinion varies as to whether the NHS is well-placed to cope with the economic mess. At a recent NHS Confederation event on the recession, former Health Secretaries Stephen Dorrell and Patricia Hewitt took different views.

Dorrell’s apocalyptic view of the national and global economic prospects left him very gloomy. Dorrell warned that the economic downturn would be prolonged over many years, adding that he doubts “Panglossian hopes of a few years’ rough passage, prior to a return to the Elysian Fields of economic good times. It will be hugely tougher to maintain living standards, and that includes funding of public services.”

He suggested that “if the long-term sees a relative adjustment to living standards as I fear, the NHS can expect a substantial long-term rise in demand due to poverty, stress, depression”. Mr Dorrell appeared unaware that the NHS is already dealing with these problems among deprived sections of the population, who are disproportionately the service’s biggest users.

Hewitt was more upbeat, pointing out that changes to the NHS financial system and the lessons of financial recovery under her tenure left the service much better placed.

Hewitt told attendees, “among managers and clinical staff alike, I sense much more embedded focus on real value for patient and much better understanding of (NHS chief executive) David Nicholson’s argument in the 2009-10 Operating Framework and in the Darzi Review that best care also best value.

“The world-class commissioning ambition has made the commissioning arm of the NHS significantly stronger than 2-3 years ago. The NHS has a reasonable surplus, some of which is o be released; and fewer organisations with big deficits - reflecting much greater financial discipline and need for best value for every pound in NHS. The impact of the 18-week waiting target has led to a better understanding of patient pathways across NHS. And the national tariff is now maturing to deliver value with the new quality payments based on health outcomes”.

Meanwhile, a report from the Audit Commission and National Audit Office suggests that the NHS in England is well placed to cope with the “inevitable” squeeze on future spending.

The AC / NAO review highlighted last financial year’s overall surplus of £1.67 billion on a £90 billion budget It highlighted the fact that NHS foundation trusts made a £528 million surplusand had £2.3bn cash in the bank. Nick Timmins of the Financial Times ascribed the cash amassed as due to FTs “doing more business with the NHS than expected, capital projects slipping and primary care trusts pre-paying them for work”.

Monitoring missing millions
However, the executive chair of FT regulator Monitor, Dr Bill Moyes, told the Healthcare Financial Managers’ Association conference the NHS faces a £13 billion gap between its predicted need for funding and its probable funding by 2013.

Moyes derived his figures using the expected 1.1 per cent NHS annual funding growth after 2011 with those used in Sir Derek Wanless’ 2002 review of NHS funding needs, noting "that's an awfully big gap between what people think is going to be needed … making cuts by extending waiting times would no longer be possible as shorter waits were about to be enshrined in law". He suggested that productivity gains of 2.5% a year would be needed to cope, in an area where the NHS currently struggles to deliver targets of 0.9%, and added that cutting quality would raise hospitals’ bed day running costs and mean patients choosing to go elsewhere.

Now £13 billion is an interesting sum. It is similar to the one used in the Kings Fund's 2007 review of the 2002 Wanless Reports (which themselves predicted that to properly fund the NHS would mean a difference of annual funding requirement of £30 billion by 2022, contingent on people becoming 'fully engaged' with their own health as opposed to there being 'slow progress / no change').

The Kings Fund tcommissioned Wanless to review progress at five years in 2007, and the publication, Our Future Health Secured?, predicted an annual funding shortfall of between £7 billion and £15 billion according to uptake and progress. Its prediction on the population's progress on health outcomes found something between slow and medium progress.

CQC – intermittent checks for good performers
And just as light-touch regulation is being revealed to be a disater in the financial community, the ‘Annual Health Check’ will be abolished when the new Care Quality Commission replaces the Healthcare Commission in April 2009.

Providers and commissioners of NHS care will instead be subject to "periodic reviews" (measured against core standards, national targets, financial management and use of the Mental Health Act and Mental Capacity Act) by the new regulator, according to their recent consultation. The CQC will also for the first time licence all providers.

Its consultation reveals that next financial year will be treated as a "transition year" before registration standards come into force in April 2010.