The rise and rise of health spending

Before I wrote my post on the NHS last week, I should have read this King’s Fund report on long-term health spending from earlier this year. It covers the subject in some depth. For those who don’t have time to read it, here are a few of the main points.

Firstly, the rise and rise of health spending in the UK.

Screen Shot 2013-08-16 at 18.37.18

Recession accounts for some of the sharper rises in spending as a percentage of GDP but the long term trend is ever onwards and upwards. The periods in which the spending levels off can largely be accounted for by economic growth running slightly ahead of health spending.

Even if you allow for inflation and population increase, spending on healthcare only ever goes in one direction. It’s roughly 18 times what it was when the NHS was founded. State-of-the-art hospitals are a lot more expensive than bicycling nurses.

Per capita healthcare spending 1948-2012 (2005 prices)

Screen Shot 2013-08-16 at 18.46.27

An ageing population will give these cost pressures an extra boost. Just about everybody thinks healthcare spending will rise as a percentage of GDP once the government’s current freeze is over. Some projections show it increasing by quite a lot.

Screen Shot 2013-08-16 at 19.01.03

But here is the killer graph! On the X Axis we have inputs (in other words, spending) and on the Y Axis outputs. So the inputs are twice what they were in 1995 but the outputs have not kept pace. In other words, productivity has fallen. The bubbles represent increases or decreases in productivity.

Screen Shot 2013-08-16 at 19.06.34

Look at the 2010-2014 period. Although inputs will stay the same, thanks to the governments freeze, outputs are set to increase rapidly. This is due to huge year-on-year productivity gains represented by those four big bubbles; productivity gains that dwarf anything the NHS has achieved in one year, let alone been able to repeat in successive years. This is the so-called Nicholson Challenge.

The chart shows the sheer scale of that challenge. It reminds me of that old ‘Then a miracle occurs’ cartoon.

Screen Shot 2013-08-16 at 19.19.21

The King’s Fund concludes:

The productivity challenge for the NHS looks daunting compared with historic achievements.

An organisation, or, more accurately, a collection of organisations with no history of productivity improvement is suddenly going to get really good at it. Or so the government would have us believe.

The early signs are not good. Yesterday, the Health Service Journal reported that NHS England is likely to miss its efficiency target this year:

As of the end of June, NHS England’s savings plan was 9.2 per cent behind target. The shortfall is forecast to rise to 12.9 per cent by the end of the year – a gap of £48.1m in a £374m savings plan.

The main contributor to the gap is primary care, for which NHS England took on responsibility in April. It predicts it will miss its primary care QIPP target by 19 per cent, or £22.5m. It is also predicting a 38 per cent shortfall on public health savings, although these account for a much smaller percentage of the organisation’s budget and QIPP target.

Now before you start having a go at the folk in the NHS, it’s amazing that they have managed to make any efficiency savings at all given that they have just been though a massive, albeit completely unnecessary, restructure.

It’s also no surprise that primary care, the part of the NHS that has borne the brunt of the restructure, has struggled to deliver its efficiency savings. Who’d a guessed it eh?

Maybe this is just first-year teething troubles. Perhaps the productivity drop that has accompanied every other NHS restructure will not last as long this time. It could be that NHS organisations can recover more quickly from a re-organisation than ever before and, at the same time, make efficiency savings at a faster rate than ever before.

You wouldn’t bet on it though would you?

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One Response to The rise and rise of health spending

  1. Pingback: The rise and rise of health spending - Rick - Member Blogs - HR Blogs - HR Space from Personnel Today and Xpert HR

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