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The next cut is the deepest

Mark Dayan, policy and public affairs analyst at the Nuffield Trust, explains that while NHS leaders strive to deliver historic efficiency savings they should realise there is a real chance that they will ultimately fall short.

Most readers of this magazine will by now be more than familiar with the famous £22bn in annual savings which the NHS signed up to deliver under NHS England’s Five Year Forward View. But the figure is so large, and so abstract, that it can seem hard to grasp what it actually requires of the service. In our ‘Feeling the Crunch’ report, the Nuffield Trust set out to break down the financial projections and requirements set out by various NHS bodies – and look at how the future they lay out compares to the five years of tough spending settlements we have already been through.

These years saw the heavy lifting of savings borne by NHS trusts. As the real-terms value of the tariff they receive for each procedure was been cut by 4% recurrently each year, trusts responded by delivering productivity improvements of around 2%. While an impressive performance by the standards of most parts of the economy, this was ultimately not fast enough to keep pace – resulting in last year’s reported provider deficit of £2.45bn, which we estimate masked an underlying deficit of near £3.7bn after accountancy adjustments.

Lord Carter’s review of NHS hospital productivity, with its projected £5bn in savings by 2020, throws down the gauntlet for a repeat performance from trusts. The efficiency savings and cost cutting it recommends in areas such as staff rostering, purchasing equipment, and the consolidation of pathology largely continue the 2% trend of the last few years. The good news is that under the latest plans for the tariff, these 2% savings should now be enough to keep trusts from falling into even greater deficit.

Home and dry? Unfortunately not. Even adding the savings that central NHS bodies should be able to deliver directly – largely by holding down wages – our calculations show that with the volume and needs of patients continuing to rise as quickly as projected, the result would be a £2.5bn shortfall in 2020.

The only option, then, is to make progress in bending down that relentlessly increasing trend of rising need for healthcare – something which proved elusive over the last five years. This is the backdrop to the increasing emphasis in recent years on finding ways to prevent people from needing care in hospital. Multispecialty Provider Vanguards aim to deliver outpatient and diagnostic procedures in GP surgeries. Sustainability and transformation plans being drawn up contain initiatives to reduce unnecessary appointments by directing patients to the right place first time, and to encourage GPs to be more frugal with referrals in areas that seem to have relatively low thresholds.

However, there is a problem. Much of this costs money: for capital investment in new facilities outside hospital, and for staff to double run services while people learn to work differently. In theory, the NHS has a Sustainability and Transformation Fund to cover this, which will reach well over £3bn each year by the end of the decade. But our calculation of a £2.5bn gap assumes the fund is used to cover the general costs of care – as most already has been in this year. In a grim dilemma, taking out money for real transformation to plug the hole in the NHS finances means that the hole itself gets wider – to £6bn a year by 2020-21.

The only way to escape the quandary may be to balance one near-impossible task upon another one. We calculate that if providers actually could deliver 4% savings for the next two years, as they have struggled to before, then over £2bn of the fund could be freed-up for investment in different services.

But that is just half the challenge. The freed-up money would then need to fund a wave of success across England in identifying and rolling out initiatives that really do slow the rise in pressure on hospitals. The evidence so far is that many such projects do not deliver what they set out to: those that do take many years.

The £22bn in efficiency savings does not represent an impossible figure. But it does represent an intensification of a squeeze over the last five years which has caused visible pressure on every part of the health service. Unprecedented effort, bravery, co-ordination and sheer luck would be needed to reach it. Even as they strive to deliver historic efficiency savings, NHS leaders should realise there is a real chance that they will ultimately fall short – and they along with staff, patients and politicians should give a thought to the options if, by 2020, our health service quite simply has less money than it needs.

FOR MORE INFORMATION

W: www.nuffieldtrust.org.uk/publications