Far from saving it, the challenges facing the NHS right now threaten to overwhelm the service, warns Alan Milburn.

As the enfeebled Health Bill limps its miserable way through Parliament the warning klaxons are sounding once again about the fitness of the NHS. Rising hospital waiting lists, lamentable standards of elderly care, local budgets at bursting point. They all make uncomfortable reading.

But you ain’t seen nothing yet. A perfect storm is gathering. If we are not careful it will engulf our care system. In the next decade it will be hit by a toxic combination of dramatically changing health needs and rapidly dwindling health resources. Some say that will inevitably require changing how the NHS is funded. In my view that would take Britain down an ideological blind alley. Instead we need a new wave of reform to replace the existing model of how we deliver care with a new one: so that it is based in the community not obsessed with the hospital; focussed on prevention rather than treatment; and puts power in the hands of the patient rather than the provider.

Our care system has to change because health needs are changing. By 2030 one fifth of Britain’s population will be elderly. But this will not be old age as we have known it. There will be more old people living with more health problems – co-morbidity – than ever before. That will require more seamless care from a system that currently is more fragmented than it is cohesive. And it will require a profound change to how and where care is delivered with less reliance on care homes and more care available in people’s own homes. I say that because as the post-war baby boomer generation grows old it seems unlikely to me that we will tolerate a system of care that tells us what to do. We will want to tell it what to do. We are less likely to allow the local council to determine which care home we spend our final days. We are far more likely to want to live out the end of our lives cared for in our own homes by people we choose with budgets we control.

We are a long way from that. There is a mismatch between the services that are provided today and what will be needed for tomorrow. If the healthcare challenge of the last century was to beat infectious disease the battle for this century is about tackling chronic disease. Already 70 per cent of the NHS budget is spent on chronic disease. But there is more to come. Diabetes prevalence worldwide among adults is expected to increase by 50 per cent in the next 25 years for example. This change in the pattern of disease calls for the focus to move from treatment to prevention. What differentiates diseases like diabetes, arthritis or dementia from other forms of illness is that they become a permanent fixture of people’s lives. It is with them 24/7. So what patients do to manage their own conditions – in terms of lifestyle, and diet and exercise – becomes as important as what clinicians do. So patients need to be treated less as passive recipients of care in a system that denies them both power and responsibility, and instead should be empowered to take greater charge and more responsibility for their own health.

I do not believe any of that will happen under this Government. The Conservative Party’s foolish pre-election commitment to oppose changes to hospitals has created a major obstacle on the road to reform. Worse still its proposed health changes have turned into the biggest car crash in NHS history. The Health Bill is a patchwork quilt of complexity, compromise and confusion. It is incapable of giving the NHS the clarity and direction it needs. It is a roadblock to meaningful reform.

As always, the NHS will try to make the best of a bad job. In these next few years, in the absence of a lead from the top, we will see much more innovation from below. There will have to be. The drive for £20 billion of efficiency savings will not be realised without radical reconfiguration of how local services are delivered. An era of low growth and indebted government means the accent will have to be on finding new ways of getting more out of health care for what is put in.

This challenge is not unique to our country. It affects every health care system in every country. The old assumption that improvements in health care performance could only be brought about by large increases in investment is no longer sustainable. A new holy grail in global health policy is emerging – how to get better outcomes for lower costs.

Faced with a rising tide of demand for care, doing more with less may look like mission impossible. But the way care is delivered today is neither future-proofed nor cost efficient. It is inefficient financially and inappropriate clinically. According to the Audit Commission, in 2009-10 of the £80 billion spent by primary care trusts, nearly half went to hospitals – the most expensive form of care. Primary care received just one quarter. Despite exhortations to switch care from one to the other, spending on secondary care rose by 15 per cent; on primary care by just 5 per cent.

That failure can no longer be tolerated. Of course change will not be easy but a radical reconfiguration of services can make far better use of constrained resources. Take one example: the Audit Commission says the NHS could save £700 million a year if those areas with the highest emergency hospital admission rates reduced to the level of the average. Since the highest readmission rates nationally are associated with smoking and alcohol-related long term conditions, that will require community services to be built up. The new investment priority for the NHS and social services in this decade should be the creation of a new community care infrastructure – polyclinics, intermediate care, independent living, telecare and telemedicine. That will mean explicitly switching spending within healthcare budgets so that we spend less on hospitals – indeed we will need fewer hospitals – and more on new forms of care in communities.

In the next decade and beyond, governments will need to think of themselves less as big spenders when it comes to healthcare and more as switch spenders: where resources are switched from less optimum services to ones that produce better outcomes for lower costs.

Exhortation will not deliver this change. Neither will the Health Bill. It will need a new wave of reform to deliver it.

Firstly, moving from a healthcare system to a whole care system. Today care is divided between hospitals, GPs, community health care and social services each with a separate budget, separate management and separate information systems. That is bad financially – it creates huge inefficiencies and duplications – and it is bad experientially – patients feel past from pillar to post. The future growth in elderly patients and those with long term conditions requires a far more integrated approach, particularly between health and social care. Repeated local attempts have been made to improve inter-agency working but it is national reform that is needed – a full-scale merger of health and social care into a single organisation with a single budget with responsibility for commissioning integrated care to individual patients.

Secondly, rebalancing so there is less central and more local control. Of course, government should set the strategic direction of travel and the overall policy framework. But the lesson I learned as Health Secretary is that, if service improvement is to be self-sustaining rather than top-down driven, you have to get those on the frontline to take ownership and to shoulder responsibility. That can only be done by devolving power locally rather than hoarding power nationally. That is what New Labour started to do with primary care trusts and Foundation Trusts. It is what the current Government had planned to do with GP commissioning. It is what a future government will have to do. The aim should be to make autonomy the norm not the exception amongst all care providers.

Thirdly, moving from paying providers for who they are to what they achieve. In most walks of life, it is a given that you know what you are spending and you know what you are getting. Traditionally healthcare has been exempt from the normal rules of the game. There has been little focus on outputs, still less on outcomes. In recent years that has been changing. We began by paying hospitals specifically to reduce waiting times and increase activity rates. The more they did the more they got. As with any such system, it has created distortions which now need to be addressed. Incentives to bring patients into hospital and keep them there are not nearly so strong as the incentive to keep them out. The focus is on outputs not outcomes. This is the next big change. In future, providers should be paid less on the basis of the quantity of what they do and more on the basis of the quality of what they achieve. Critically, the key financial incentive across the whole care system needs to be targeted on keeping patients healthy and out of hospital.

Fourthly, moving from healthcare being public sector to instead becoming a public service. The UK’s system of healthcare is unusual in the dominance enjoyed by one provider, the NHS. Monopolies in any walk of life – whether public or private – rarely deliver either operational efficiency or customer responsiveness. That is why we created a managed market in the NHS with the introduction of private and voluntary providers. One study found that those parts of England where new private sector providers had been introduced into the NHS had better outcomes and lower mortality rates than those where the public sector continued to monopolise NHS care. Of course competition may not be appropriate for every service and it will often encounter stiff political resistance. But in the new fiscal climate we are now in and with the pressures policymakers must confront, there is a better chance that politics will lose and economics will win. For the NHS to meet the challenges of the next decade it is more competition not less that is needed. The next wave of reform should create a legal level playing field where public, private and voluntary sectors are able to compete to be providers and are subject to the same exacting standards and incentives.

There is one final area of reform that in my view above all others really holds the key to making the NHS sustainable: how we move patients from being passive bystanders to active participants in health care. If we can achieve it, this will be the most significant long term change of all. I say that because the explosion in chronic conditions we are now witnessing across the world calls into question the whole paradigm of how we have traditionally delivered healthcare. Clinicians have prescribed and patients have received. But if you have diabetes, what the patient does – the food they eat, the exercise they take, the lifestyle they choose – has a huge bearing on their health. That is why we have to find new ways of making patients co-producers of their healthcare. That will necessitate a transparency revolution across the whole care system so that patients and clinicians alike are able to see which services work best and which do not. And we should give hundreds of thousands of patients, those with a chronic condition especially, their own individual state-funded healthcare budgets so they have direct control over resources to buy the healthcare that is right for them and personalised to their needs. Evaluations from both the US and the UK show that, where people have direct financial control over their own health budgets, levels of patient satisfaction rise and levels of public spending fall.

I do not believe that the current Government can or will make these changes. But I am certain that a future government will have to. Change will have to happen not just because the cash is running out. It will have to happen because time is running out for a system that was designed to deal with yesterday’s challenges not tomorrow’s.

This essay appears in The next ten years published by Reform.