Andy McKeon: saving £15bn-£20bn will be no summer holiday

The end of term is approaching. But alongside the pleasure of the prospect of freedom comes the worry of the holiday project to be handed in on the first day of next term. In the NHS school, the headteacher has set a question that all senior pupils must answer - how do you save £15bn-£20bn over three years, starting in 2011, while improving the quality of the service?

An eager student, I hurried off to the Nuffield Trust to find at least part of an answer in a seminar on integrated care by Steve Shortell from the University of California Berkeley and took careful notes.

Three points stuck in my mind, relating to the new mantra of quality, innovation and productivity.

First, the importance of the full monty approach. A high proportion of well developed practices reported they applied each of 24 key clinical processes covering six chronic disease areas. But only 4 per cent routinely applied them all. Innovation is not the issue, use of known techniques is.

Second, size matters and Americans think big. “Practices” of 150 clinicians seem to perform better, possibly because they have a critical mass for infrastructure and comparisons. It was possible but much harder to link smaller ones together to achieve the same effects.

Third, it was clear that integrated care was hard to develop and would not save money in the short term. It improved quality but its real financial benefit was to reduce the rate of growth in about five to 10 years’ time. I suspect the same can be said for other popular areas for transformation, such as moving services into the community.

The NHS can, should and will do these things. But there will also have to be a good dose of pragmatism. Like the trust chief executive who intends to spend as much as possible of 2010-11 money (and probably 2009-10 as well) non-recurrently so the cushion is there and absolutely in their hands, and, unlike a surplus, hidden from any passing vultures.

It will also be important for the Department of Health to play its part in helping to secure the efficiencies. There are in my view relatively few things the DH can do, apart from providing support and guidance, but that could have a big impact on the financial position nationally and locally.

Reviewing central budgets in order to maximise allocations to the front line should be routine, and anybody on the central payroll should be worried.

Four questions

Thoughtful tariff setting to drive further efficiency is also essential, although normative pricing at the moment looks limited and slow to develop. But there are four further questions the DH should be asking itself.

First, is the money always in the right place? There is some evidence that trusts in deprived areas have higher reference costs because their PCT has more money, not because they treat sicker people.

The second question is: are there any rule changes we can introduce which might make life easier for the front line? Recent accounting changes make this point clear. Under international financial reporting standards, private finance initiative deals will now be on trusts’ and PCTs’ books. It had been thought that this would mean that they would score against the DH’s expenditure limit, and therefore in effect restrict the capital available. But, in a have your cake and eat it move, it now turns out that a different set of rules will apply for budgeting and some DH accounting purposes. So private finance schemes will not count against the DH’s expenditure limit, effectively increasing the amount of capital available.

This is confusing and schemes still have to be paid for, but it may help get some spend to save schemes off the ground.

Third, how can we flex our procurement muscles, including drug pricing? This year’s pharmaceutical price regulation scheme price cut was good news for the NHS but, as the largest single item after pay, the drugs bill cannot be immune from at least consideration. GP and other incentive schemes help to reduce prescribing costs, but history says the most significant benefits come from price cuts.

Finally, what should be done about pay, even if negotiations rest with others? My friendly chief executive noted that a pay freeze for one or two years would be helpful, although it will be strongly opposed. Even if there were no national increases, it would still be possible for local deals to link pay to greater efficiency so that staff share directly in the benefits they have helped create rather than be guaranteed an increase in the first place. Indeed, some enterprising foundation trusts might want to think along these lines, regardless of national decisions.