How can the NHS achieve last month’s order to slow the pace at which activity grows? Sally Gainsbury offers some ideas

As edicts go it is neither the most catchy nor the most inspiring, but the new NHS must-do was finally articulated in last month’s joint operational planning guidance from NHS England and NHS Improvement: activity growth moderation.

Activity growth moderation means what it says on the tin: slowing the pace at which the amount of NHS activity grows.

That current trend is around 3 per cent extra care a year – measured in terms of more patients, with more complex needs, receiving more advanced healthcare, at a higher quality. All things being equal, the current level of funding would be able to sustain an activity growth rate nearer 2.4 per cent a year. But that would leave zero headroom to cope with periodic shocks such as a disease epidemic or the potential fall-out from Brexit. Perhaps for that reason, NHS England aims to reduce growth by 1 percentage point.

Hard to isolate

NHS England roughly breaks the current 3 per cent growth trend into two chunks: around half of it driven by demographic changes including population growth and age profiles, and the other half by “non-demographic drivers”, which include medical advancements, public and policy expectations and quality.

The precise breakdown of these components is hard to pin down – some assessments of the drivers of healthcare activity (and therefore cost) attribute far more significance to the influence of “technological change” and medical advancement than implied by NHS England’s neat breakdown. But the truth is these factors are hard to isolate when it comes to assessing past trends.

The effects of the new clinic first need to be observed before the old can be turned down and shut off. In other words: double running costs need to be covered

Turning down the volume

That makes the task of “moderating” their influence even trickier – like trying to turn down the treble on a graphic equaliser without knowing how loud it is at present, or even being able to find the right knob. Few would want to see “growth moderation” achieved through curtailing medical and technological advancement, or quality improvement. Neither would they want to see tomorrow’s 80 year olds denied access to the same treatment received by today’s, which a crude attempt to hold back growth from demographic changes might entail.

The holy grail in activity growth moderation, then, would be interventions that reduce the impact – whatever that is – of our ageing demographic on demand for healthcare, or that reduced the underlying level of ill health through public health improvement.

But such interventions take time and cost money. Like the sound technician at the graphic equaliser, the changes need to be phased in and closely monitored; staff cannot just be diverted on day one to a new clinic designed to reduce demand for an ‘old’ service. The effects of the new clinic first need to be observed before the old can be turned down and shut off. In other words: double running costs need to be covered.

But is the money there to do it?

Last year, NHS England announced that approximately half of the “extra” funding the NHS would receive above inflation between 2015-16 and 2020-21 was being ringfenced to form a sustainability and transformation fund. With a total cash value of £15bn over the five years from 2016-17 onwards, the first call on the fund would be to stabilise provider finances. After that, an increasing proportion of it would be available for investment in the transformation required to implement the vision in the Five Year Forward View.

That however, was back in the days when Whitehall still believed – or at least claimed to believe – the provider deficit for 2015-16 would come in at around £1.8bn. The underlying deficit is now acknowledged to be around twice that.

Indeed, an underlying deficit of £1.8bn is now the optimism-high goal for 2018-19.

NHS provider deficits have been driven by half a decade of real and cash term cuts to their income. The £1.8bn a year payments, then, are welcome

As last month’s planning guidance made clear, the scale of provider deficits is such that over the next three years, at least £5.4bn of the sustainability and transformation fund will need to be spent on shoring up hospital finances, with £1.8bn being given to providers in each year to 2018-19.

NHS provider deficits have been driven by half a decade of real and cash term cuts to their income. The £1.8bn a year payments, then, are welcome and needed.

But where does that leave funding for transformation? After provider sustainability funds have been paid, a total of £2.5bn is available over the next three years to invest in transformation: the equivalent to £4m extra a year for each clinical commissioning group.

How much is enough?

Is that enough? It’s not clear anyone knows. A one percentage point reduction in rate of growth in emergency and elective general and acute inpatient care alone would imply preventing over 142,000 extra emergency and elective inpatient admissions this year – and not just holding them off until April 2017, but preventing them happening at all.

But that would still only save around half of the £1bn needed in year one. Over the three years to 2018-19, a 1 percentage point moderation in the growth rate would mean the £2.5bn of available “transformation funds” would need to be spent ensuring over £3bn worth of activity was permanently removed from the activity baseline.

The risk, if it cannot, is the NHS starting the next decade with a recurrent overspend of more than £2bn a year – even after the painful cost cuts providers are currently being asked to make to reduce their deficits.

Sally Gainsbury is senior policy analyst at the Nuffield Trust