Can the NHS survive?

Last week, Chris Hopson, chief executive of the Foundation Trust Network, became the latest NHS grandee to warn of the service’s imminent collapse. (See previous post.)

Hopson’s view is that, because the NHS is not changing fast enough, the health service could keel over in 2016 – the year after the general election.

His reasoning is simple and brutal: there is no money and, bar a few exceptions, not much evidence that anyone is doing anything different. The NHS, he warns, is supposed to find 4% a year in savings – a sum that is double what the UK economy has managed and something Hopson did not even witness in corporate life. In 2016, when the government takes out £3.8bn from NHS budgets for social care, the level of savings needed by the health service will rise to 7% a year. This, when demand from an ageing population, the cost of new drugs and patient expectations are rising.

NHS medical director Bruce Keogh said something similar a couple of weeks ago, although making a comparison between the NHS and PC World wasn’t the best way to get his message across:

If you go down to PC World or Dixons, each year you would expect to pay less for a PC and you would also expect the specifications to improve….I have all sorts of people [in the NHS] saying to me: ‘Give me £1,000, give me £200,000; I can improve our service’. My challenge is every other aspect of industry has to improve the quality they offer for less. So we need to change that mindset.

It’s a rotten analogy. The managers of PC World can’t take much of the credit for falling PC prices. That is down to the manufacturers. Alas, process improvement in manufacturing is a difficult model to translate to the public sector for reasons I have discussed before.

But the general point of these warnings from senior health service bosses is that the numbers don’t add up. If the NHS doesn’t reduce its running costs or receive a lot more government cash, it will fall apart.

The Office for Budget Responsibility agrees. According to its Fiscal Sustainability Report, if the health service can increase its productivity by 2.2 percent per year (the OBR’s Central projection), economic growth, and therefor tax revenues, should be able to keep pace with rising demand until the end of the next decade. On the other hand, should health productivity only rise by 1 percent per year, a deficit would start to open up sometime around 2025 which would take public debt to more than 200 percent of GDP over the next 50 years.

Screen Shot 2013-07-31 at 20.15.58

This projection is based on all other things being equal, so that if entitlement to care remains as it is now, the rising demands of an ageing population will add more each year to the cost of running the NHS. It will either need to improve its productivity or it will need equivalent annual increases in funding. If that funding is not met through taxes, the increased borrowing will push up the national debt to over 200 percent. There are a lot of ifs in there but the main point is that health costs are rising rapidly and they will continue to do so.

The OBR calculates that, without any productivity increases, health spending will increase from its current 8 percent of GDP to over 10 percent by the end of the next decade and close to a quarter of GDP by the middle of the century.

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Trouble is, as the OBR goes on to say, it’s Central projection might prove to be optimistic. The NHS has rarely improved productivity at close to 2.2 percent in a year and, even when it has, it hasn’t been able to sustain it. If past behaviour is a predictor of future performance, 2.2 percent every year looks like a tall order.

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The problem for the NHS is that demand for its services is likely to rise at such a rate that the productivity improvements it has been able to make in the past won’t be enough to keep pace with its rising costs. This is a problem for health services across the developed world. As this report from the Economist Intelligence Unit explains, life expectancy is rising but healthy life expectancy is not keeping pace with it, so more people will spend more years at the end of their lives needing medical care. It warns that the health systems in Europe are “facing financial ruin”.

The IMF’s Fiscal Monitor report, published in April, predicts increases in health spending relative to GDP for all the advanced economies over the next 15 years. It forecasts health spending in the UK rising by 3.3 percent of GDP between now and 2030.

Screen Shot 2013-07-31 at 20.34.16Sources: OECD, WHO, IMF.

For reasons which are not clear from the report, the IMF believes health spending in the UK will rise by more than in most other advanced economies. This would take Britain from a middling 8 percent of GDP to around 11 percent, one of the highest levels of spending in the OECD. Projections for the US are even worse, rising from a level similar to ours to over 13 precent of GDP by the end of the next decade. Given that the demographic challenges in the UK are certainly no worse than those of other advanced economies, I’m not sure why the IMF should take such a pessimistic view of our health costs. I’d be interested to hear from anyone who knows.

An OECD report published in June drew similar conclusions. It predicted that healthcare spending in the UK would rise by somewhere between 2 percent and 7 percent of GDP by the middle of the century. OK, 2060 is some years away but the overall conclusion of the study was that there isn’t much the OECD countries can do to stop health costs rising. The question isn’t whether health costs will rise faster than the economy can grow, it’s how quickly and by how much. Even if we do some really clever things to improve healthcare efficiency (the OECD’s ‘Cost Containment’ scenario), the cost increases will still outstrip economic growth.

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Just about every projection shows that the cost of healthcare will only move in one direction. You often hear politicians talking about the need to do ‘more with less’ in the health service but it is difficult to imagine a scenario where there will be any significant reduction in healthcare spending. ‘More with the same’ or ‘a lot more with a bit more’ is a closer representation of the challenge facing the NHS but it’s not as good a soundbite.

With demand rising and pushing costs ever higher the NHS can’t go on as it is. Health bosses agree. Using the word ‘unsustainable’ when talking about the NHS tends to provoke emotive responses but if things stay as they are, the health service is heading for collapse. It will either need to improve productivity much more quickly than it has done in the past, or it will need a lot of extra funding, or it will have to stop doing some things – or stop doing them for free.

So what’s it to be? Are you willing to pay more taxes to pay for the rising cost of healthcare? Are you happy to see the NHS stop providing some services or start charging for them? Or do you think the NHS can make healthcare in Britain so efficient that neither cuts nor extra funding are needed? Because, without at least one of these things happening, the NHS is stuffed!

Answers in the usual place please.

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14 Responses to Can the NHS survive?

  1. Pingback: Can the NHS survive? - Rick - Member Blogs - HR Blogs - HR Space from Personnel Today and Xpert HR

  2. Chris Wilson says:

    I fundamentally don’t understand why any of this is a problem. Why are you using words like “pessimistic”? We’re getting older, we value our health, we decide – collectively as a society – that what we want to spend our wealth on is better healthcare. It seems likely a perfectly reasonable preference. Obviously it may lead to the moral horror of investment bankers having to pay their taxes, and not indulging ourselves with a dysfunctional housing market but, again, why is that a problem? If the way our economy is run is democratically accountable to us – all of us – and we want the NHS why shouldn’t we have it? What’s the downside? What’s the disbenefit? You may think it’s so obvious that it doesn’t need to be stated, but it’s not to me.

  3. Malcs says:

    I’d pay more tax, personally. But I’m just one of those people.

    Re the IMF prognosis for the UK, is there a chance it’s informed in part by obesity levels in the UK and US relative even to other developed economies?

  4. John D says:

    I tend to agree with the other two commentators. It is all a matter of priorities. If we democratically decide we want to keep the NHS at the same level of provision as now, then it is up to the politicians to make this happen. One way they could do that is by not wasting huge amounts of money on a so-called “independent” nuclear weapon system that is neither independent nor affordable. I would far sooner see money being spent on healthcare than on deathcare.
    Another aspect is for the politicians to stop wasting huge sums of money or reorganisation of the NHS – which is neither wanted nor warranted by the public or the healthcare professionals. Why can’t they learn to leave good enough alone?
    Finally – from me – I pose the question of what is GDP and what is growth? We know we have a growing population – one of the most rapidly growing populations in Europe. This must surely lead to a growing economy too? In which case, the future costs of NHS care will be coming out of a much larger economic pot, will it not? So: where is the problem?

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  6. “I’m not sure why the IMF should take such a pessimistic view of our health costs. I’d be interested to hear from anyone who knows.”

    Its simple really. The IMF believes that public providers are “inefficient” and that only privatisation will “cure” that issue (all neoliberal nonsense), but (rightly) they conclude that wholesale privatisation of the NHS is not possible politically, and hence they conclude that the UK is doomed.

    I know that anecdotes prove nothing, but I will offer one anyway. When I was diagnosed with type 1 diabetes in 1976 at the age of 11 I was told by the consultant that by the time I am 50 I will need a new kidney. He was not wrong: most of the people he treated who had had diabetes for 40 years had failing kidneys. In the 70s treating kidney failure was very expensive (indeed, insulin was expensive then too). I’ll be 50 next year and my kidneys are functioning fine. My kidneys will last me a lifetime. How ddid this happen? Purer insulin, more convenient injection mechanisms, home blood glucose monitoring, more effective hypertension drugs, all of these contribute. Treating diabetes, and treating the complications from diabetes, are a lot cheaper than it was 40 years ago.

    It is very difficult to predict costs 40 years ahead, and it is frankly silly to extrapolate from current costs. For most people, their use of healthcare will only be in the last 5 years of life. This truism has not changed much, though we are seeing some conditions that were once short term and fatal becoming long term conditions (some kinds of cancer, for example). The costs of those conditions – particularly for the elderly – are in nursing care.

    So why the doomsday pessimism? Most of healthcare costs is in manpower – its about about 70% of NHS costs. The current squeeze on NHS funds comes from government policy of no pay increases for most NHS staff. That is not sustainable, and once the pay freeze ends (which it has to at some point) there will be an explosion of costs. I don’t think any of the graphs factor this in. The next biggest part is clinical supplies: drugs etc; this is around 15%. The world needs a reform of drug research and manufacture. Often when drugs go out of patent it makes the treatment trivially affordable. R&D is costly, and we desperately need reform to reduce this cost and to shift it away from those that cannot afford it (sick people). My personal opinion is that research should be nationalised (carried out by government owned labs) and all products should be patent free. That way capitalism will do what it does best – competition between manufacturers will lower the production costs of drugs – while the public sector will do what it does best, prioritise research on what is needed rather than what is most profitable. It won’t happen, of course.

  7. Isn’t this all about the neo-liberals softening up the electorate for Americanisation of the NHS – ie privatisation and reduction of the NHS to a rump for people who can’t afford private health insurance, and a massive expansion in private health insurance for most of the population? To me, these stories seem to be all about starting a panicked stampede into private health insurance.

  8. guthrie says:

    Obviously I’d pay more tax, or rather, collect it better from those who have the money.

    But there’s a massive elephant in the room, surely? The expensive and wasteful PFI projects, the increased number of managers and bureacrats related to the internal market and all the neo-liberal deforms of the 21st century – do we know how much all that costs the NHS every year? I expect it would save a few percent on the budget if we got rid of them all, which would at least offer some breathing space.

  9. John D says:

    Unfortunately, we are all stuck with the existing PFI contracts; they cannot simply be wished away.
    They have also been applied in other areas too, such as to new schools and other public provision.
    There is a secondary PFI contracts markets, whereby the original consortia members cash-out.
    They then end up with substantial capital gains while the public sector ends up with funding costs.
    It is a ridiculous situation and – to give them their due – the coalition government realised this too.
    Hopefully, no more PFI contracts will be employed in future, though now there are LBAVs.
    Locally Based Asset Vehicles are being used to convert public assets like land into private assets.
    This is proposed for the so-called Watford Health Campus, if anyone want to look it up.
    Publicly-owned land is being thrown into a deal for a private developer to build housing.
    Allegedly, the development profits will then be applied towards building a new hospital.
    Except that the hospital trust seems unable to gain foundation status which it needs to build it.
    Some of these wheezes and dodges truly are creative – but where do they leave all the rest of us?

  10. metatone says:

    So I’ve spent a number of years in academic study of healthcare organisation and economics. I’d say it’s harder than the commenters above make out, but at the same time they are right to question some of the more pessimistic forecasts. Pessimism is a political weapon in this situation and is used all too often for privatisation that will not help.

    So, what can we do?

    1) We have to stop the current “big bang” reorganisation and try very hard to resist the temptation to start new ones. Change has to evolve if it is going to be cost effective.

    2) The big change that needs to evolve is not about current provision setups, it’s about ongoing health. We need to look at the places in the world (e.g. Finland) where people are healthier and copy some of their investments. (e.g. parks, swimming pools, sports/activity coaches, physios, lifestyle adjustments.)

    3) We need to understand that health is not just about “medicine” but also about food. Depressing (because I like fancy food and drink too) taxes and important regulation of the megafood industry need to be put in place.

    4) We need to change the structure of “retirement” – the inactivity many people fall into is a major cause of costly problems.

    5) What makes all this all the more potentially affordable, if only we had the courage, is that private employment is never going to reach the heights it used to. We’re going to have a lot of people with not much to do in the future, that’s a reality. If we sort out fair compensation for them, they can do a lot of both “active lifestyle support” and “palliative care.” Let’s not forget that all the studies that (correctly) question the benefits of “alternative treatments” do so because a big skewer of measurements is that “people feel better if they talk to someone sympathetic for a bit.” If we can be realistic and admit that actually we have a lot of people with talents going to waste, then we can make a better life all around.

    So, in summing up, yes the NHS is doomed because all of the above are politically impossible. There are plenty of studies showing the ROI for the country of better “leisure centre” provision, but you won’t find a single IMF report recommending a building program…

    • Rick says:

      Great ideas here Metatone. I think you’re right on all 5 counts. Hospitals are the most expensive part of healthcare so keeping people out of hospital has to be one of the keys to reducing the rate at which healthcare spending increases.

  11. John D says:

    Also, well patients should be discharged from hospitals to social care of a high standard.
    This will free up hospital resources and help them to provide more cost-efficient services.

  12. Andrew V says:

    The question of ‘priority’ is massively simplistic when you consider biology and behaviour. We have a healthcare system that is paid for by low-consuming, working age people (a group declining as a percenatge of the whole) but consumed by aged, non-working, non-tax paying population (a group massively increasing as a percentage of the whole). Consequently, you are asking a group that ‘feels’ no benefit to pay higher taxes for the benefit of a group that consumes but contributes little in taxation. I see an emerging social unrest situation… not a simple matter of choice.

    • John Dowdle says:

      But the ones paying for the system are the ones who will need it as they age, which is exactly the same situation as those now using the service were in when they were working.
      We are either committed to an NHS – or we are not.
      I believe the vast majority of people in the UK are committed to the NHS.
      Just what kind of NHS we will end up with in due course is, of course, a whole other debate.
      Similar arguments can be made about social goods like education and pensions.
      Ultimately, all these “goods” are there because they are good for society, not just individuals.

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