Challenges for the NHS in the new financial period

The March Care Conversation event heard from Chief Executive of the NHS in England, Sir David Nicholson, on the financial challenges facing the organisation.

‘This is a really significant time for healthcare for all sorts of reasons,’ Sir David Nicholson told delegates. The NHS was a ‘huge’ health system, he said – accounting for around a third of all government expenditure – and it was on ‘a journey of significant change’, driven by global developments in technology as well as the expectations of patients and communities.

Change meant moving from a public sector monopoly model to a more diverse model that was dynamic in responding to local need but still free at the point of delivery, he said, and one of the key aspects of this change would be investment and building capacity in the system. The government had set out ‘big ambitions’, he said, and the drive to meet targets was an integral part of achieving these. Targets were a controversial issue, he acknowledged, but ‘if you need to mobilise a whole system they can be very effective’. Targets had been extremely effective in areas like cutting rates of hospital-acquired infections, he said, but the downside was that they could lead to increased bureaucratisation and a focus on the system instead of ‘looking outwards towards communities’.

Reform was another key aspect of change, he said, and would involve the shifting of accountability for services away from Whitehall towards the local level. There would also be ‘a whole set of technical changes’, he promised – ‘all important things, but in themselves not ends.’

The years 2004-06 had been a difficult time for the NHS, he told the seminar, with the organisation edging towards a £1bn gross deficit. ‘However, if I say to you that the challenge we faced then is probably a tenth of the challenge we face in the future, it gives you some idea of where we are.’ The question was how to use reform to drive quality and productivity, he stressed. Confidence in the NHS had never been higher, and this year would see a £1.6bn surplus in the system. ‘We’re in a good place,’ he told delegates. ‘But that’s not the end of the story. At the moment, we’re in a phony war about public sector funding.

‘The reality is that over the next 3-5 years we’ll get no growth, and in some cases we’ll lose some resource,’ he continued. ‘That doesn’t sound like a big challenge, but it is,’ as the NHS had experienced growth in real terms every year since its inception in 1948. ‘We’ve never faced a situation like this,’ he said. ‘The NHS doesn’t stand still. While the amount of money coming into us will stand still, the pressures won’t.’ These pressures included the demographic challenges of an aging population as well as the fact that technology, and the expectations of the public, were changing all the time. All global healthcare systems – whether public, private or a mixture – were facing the same situation, he stressed. The question was how to tackle it.

The NHS intended to reduce the cost of management by a third over the next few years, as well as use its clout in the supply chain to cut procurement costs. There were also changes around pay and terms and conditions that would need to be handled sensibly, he said – ‘it’s pointless kidding ourselves that we can go through all of this without touching any of these things.’ There would also be cuts in the cost of arms length bodies, and a consequent streamlining of regulation.

There were clearly efficiency gains to be made in the system, he said, as well as issues around the interface between primary and secondary care and the need for better preventative and community services. ‘There are a lot of people in hospital every day who don’t need to be there.’ Regarding IT, he told delegates ‘I read the newspapers and it’s worth saying that we haven’t spent £12bn on IT – if only we could’. Management of IT, however, had often been ‘woeful’, but the NHS was now moving from a ‘replace all’ model to a ‘connect all’ model.

Overall, it was possible to improve quality and reduce cost in the NHS at the same time, he stressed. ‘Most of the economy learned that a long time ago. Only now is it being learned in healthcare.’ Innovation was also key for linking quality and productivity, he said. ‘We think the independent sector has a major part to play in the NHS of the future,’ he told delegates. While this remained controversial, it was ‘inconceivable that the independent sector would not be playing a bigger role in 5-10 years’ time’. The NHS was ‘much more interested’ in services than products, he pointed out – ‘we’re interested in how the private sector can help us make changes, rather than sell us things’ – and discussions with the sector were around what could be done ‘at scale’.

Given the commitment of staff, and the focus on improving quality and productivity, he told the seminar that the NHS had ‘a real chance of making a healthcare system we can be proud of.’