The constrains that the current funding model puts on the NHS means value for money improvements are almost impossible to translate into long term savings. Paul Corrigan looks at how a new model of investment can change this cycle.

Any improvement in the value for money that the NHS achieves is limited in part by the annual model of funding enforced by the Treasury.

Over the years the rule that the NHS needed to receive and spend its money within the calendar year has improved its capacity for accountancy but has generated very few economies.

For commissioners, the money obtained from the Department of Health needs to add up to the amount that is spent annually, and then all will be well. But within the year it is almost impossible to develop the reality of a return on that annual investment.

As a result most NHS organisations have not bothered to learn how money, if spent in a new way rather than in the way it has always been spent, can return a much greater investment over, say, five years.

As the NHS enters the long-term funding reality of an annual increase in demand with very little increase in resource, it needs to start to challenge this model for at least part of its spend. If the NHS is to become a sustainable health service, a proportion of its funding should be spent within a longer-term model than is currently allowed.

For most of the last 30 years, people have argued that the NHS needs to develop from being a sickness service to a health service, but they have expected it to make this change while achieving a return on the investment in health that can be made within a year. This is not possible.

The NHS needs to develop some resources that will work as an investment in healthcare and will, over time, provide a return on that initial investment. Over the next year it is probable that a number of services for NHS patients will start to develop their funding through a social investment bond. Since the funding for all services over the long term will still come from national taxation this will in no way replace the traditional funding of the NHS.

This model of funding will challenge the current NHS economic culture. It will help to develop significantly better longer-term services for the same input but that input would be worked on over, say, five years.

Social impact bonds are a new financial vehicle that attracts non-governmental investment. They consist of what could be a five-year bond raised and invested in a very specific NHS service for very specific patients. This would save expenditure that would otherwise have been spent on patient health services – the savings the result of the improvements from the longer term investment. Before the investment, a likely return through diminished demand for healthcare would need to be demonstrated. The bond is repaid from these savings.

Next week a pamphlet I have written (Investing in the Future of the NHS), published by Social Finance, will suggest that services for patients with long-term conditions will benefit most from this new intervention. More than two-thirds of NHS expenditure is spent on people with long-term conditions, but health outcomes show that for many this resource is spent sporadically and inefficiently. For some with long-term conditions the capacity to spend resources coherently over a five-year period would provide much better health outcomes and therefore much better returns.

Over the past few years a considerable number of new health services have made the case that if invested in, millions would be saved further down the line. In truth very little real money has ever been saved; partly because the economics of these promised savings have never been obtainable within the annual cycle of investment, and partly because no-one has ever treated the idea of a return on investment as a real possibility.

The Social Investment Bond challenges new health services to transform that promise into reality. Changes will be needed within the NHS to firmly link outcomes with finances. But these are the changes that the NHS wants to make in how it understands the relationship between resource input and outcomes.

At a time when the NHS needs to demonstrate a real return on the investment being made, the bond provides better medium-term value for money. Over the next year we now need to get on with demonstrating how services for NHS patients can be developed within this model to realise the necessary longer-term return on investment.

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