Published: 19/05/2005, Volume II5, No. 5956 Page 18 19
With NHS spending on its way to matching the EU average, is there a consensus that more cash is delivering better services? How do we know how much the NHS needs - and how do we know what we are getting for our money? John Appleby and Simon Stevens lock horns on the key issues
FOR JOHN APPLEBY
John Appleby is chief economist at the King's Fund. He previously worked as an economist with the NHS in Birmingham and London, and at Birmingham and East Anglia universities as a senior lecturer in health economics. He is also a visiting professor at the economics department of City University.
AGAINST SIMON STEVENS
Simon Stevens is president of UnitedHealth Europe. From 1997 to 2004 he was senior policy adviser, first to health secretary Alan Milburn and then to the prime minister. He is a former health service manager.
John Appleby: Since prime minister Tony Blair's 'pledge' to raise UK healthcare spending to the EU average - 8-9 per cent of GDP - NHS spending has increased massively.
It will have risen from around£54bn in 2000-01 to a planned level of over£105bn in 2007-08. Mr Blair's pledge was widely welcomed: the NHS had been under-funded for decades.
So we are now beginning to punch our weight when it comes to the share of the nation's resources devoted to healthcare. Soon we will be spending at the level of France (although, admittedly, French spending in 2001).
If we carry on beyond 2007-08 with the current growth we will catch up with Germany by 2012.
And, incredibly, by 2017 we could be on a par with the US.
It may seem obvious that health spending in the UK has been too low. But as more is spent, there is an increasing need to justify devoting what are very large chunks of the UK's wealth to healthcare. Why?
First, as the NHS is funded from taxation, spending on the NHS is a public rather than a private decision.
And each extra pound spent on healthcare is a pound not spent on education or transport, or left in taxpayers' pockets.
I may not have to justify to anyone how I spend my income, but governments do. It is not their money and taxes are not optional.
But second, and perhaps more fundamentally, what do we get for the money spent? This turns on the value of the extra benefits to be obtained from the extra cost of increased spending: a cost-benefit issue.
The natural assumption may be that as more is spent, more is gained - more healthcare means more health, shorter waiting times, better drugs and cleaner hospitals. It may be a simple equation of more in equals more out.
However, we know that beyond quite a modest level of spending on healthcare, every extra pound spent produces smaller and smaller increases in health (measured, say, by life expectancy).
In other words, there are decreasing returns to healthcare investment; the relationship between costs and benefits is not linear, but curved.
The only recent attempt to justify extra healthcare spending was Sir Derek Wanless's 2002 review of future NHS spending. While an admirable attempt to put serious intellectual and analytical weight behind the political decision to which Mr Blair had committed his government in 2000, the justification ultimately boiled down to keeping up with the Joneses - catch up with the EU average and stay there.
More spending on healthcare may be just the thing - but at the moment we only have the scantest of evidence on whether the marginal benefits outweigh the marginal costs.
Simon Stevens: Governments would love to know exactly what is the best welfare-maximising blend of spending on healthcare, education, defence and so on. The problem is that economists have not been very helpful in producing concrete answers, forcing governments to reach their own budgetary conclusions.
We know that as countries get richer, their populations prefer to spend a higher share of national income on healthcare. That 'revealed preference' seems to hold broadly true over time and across industrialised countries, notwithstanding differences in the way healthcare is funded.
It is one powerful reason for thinking that the NHS has been 'under-funded':£220bn less than the EU average over the last quarter of the 20th century.
It was partly this logic that led us to think that spending 9-9.5 per cent of UK GDP on healthcare by 2008 might be about right, given the likely size of the British economy.
Of course there were other considerations, including the pace at which the healthcare sector could productively absorb new resources without excessive inflation, the ability to reallocate public spending towards the NHS, and taxpayers' willingness to stump up more.
As John says, the net result has been a 'catch up' period of huge NHS spending growth between 2000 and 2008. After that the brakes will go on. Which is why it is vitally important for primary care trusts to use the final few years of 'catch up' growth wisely.
The practical question is: are we there yet? Come 2008, will we have 'caught up'? If your salary rises from£54,000 a year to£105,000, that doesn't make you as well off as the person who has been earning that higher amount for many years. Add six zeros and that is what is happening to the NHS.
And it is one reason why on the day we come to spend the same as the French on healthcare, it will not feel like it. Our investment in infrastructure - IT, equipment, buildings, health professionals - will not yet have produced its full fruits. And even at our new higher level of healthcare supply, we will still be dealing with prevalent as well as incident morbidity.
But do not expect taxpayers to accept that argument. For them, the NHS under-funding excuse will be gone. From now on the NHS itself will reap the praise - and the blame.
John Appleby: Your practical question about healthcare spending reminds me of the joke about a family of hamsters running round a wheel in their cage and the two offspring saying 'are we there yet?' Is it an accurate analogy for healthcare spending?
Possibly. Given the UK's propensity to import healthcare ideas from the US, it is worth noting that the mid-range projection from one respectable estimate of US spending on healthcare suggests a figure of nearly 40 per cent of GDP by 2075.
We have better spending brakes, but the pressure to increase expenditure - even when we have 'caught up' - will still be there. Post2008 the praise and the blame may, as Simon says, be seen to lie with the NHS. But - and possibly unfairly - it is more likely to reap the latter.
The public's valuation of the benefits of healthcare will increase - justifying higher spending (and an upward revision to the National Institute for Health and Clinical Excellence's implicit£30,000 per quality-adjusted life year threshold).
And, as spending equals income for healthcare providers, drug companies etc, the incentive for supplier-induced demand will continue unabated.
Economists may have failed to provide governments with the sort of practical advice that would bring home to policy makers and the public the opportunity costs of healthcare spending decisions. But this is not for want of theory.
We need more data - particularly on health outcomes - and we need to plot the actual relationship between spending and health returns.
With this information, perhaps we will decide to jump off the wheel.
Simon Stevens: Given economists' difficulties in forecasting the next 12 months, I suspect we can safely ignore predictions for 2075. And anyway, by then 40 per cent might be a perfectly reasonable share of a larger national pie to spend on health and wellbeing.
In the meantime, one practical way in which the NHS could help create fiscal headroom in the national budget is through better treatment of the 2.7 million people on incapacity benefit, 1 million of whom say they want to get back to work. At a cost of£12bn a year, there is a significant win/win/win opportunity here for incapacity benefit recipients, the NHS, and the taxpayer.
More generally, I see two big challenges. First, as healthcare becomes a larger part of the UK economy, health sector productivity becomes increasingly important. It is worth pointing out that most of the financial gains of Sir Derek Wanless's 'fully engaged scenario' come from its heroic assumptions about improved NHS productivity - not from improved public health.
Second, we need to ensure that the extra cash is buying the right mix of interventions and treatments. I agree with John about the medium-term risk of supplyinduced demand. So on the demand side we need far more powerful purchasers.
We delude ourselves if we think primary care trust mergers and a patchwork of practice-based commissioning will give us that.
What purchasers actually need is access to sophisticated tools to profile patient risk, target costeffective upstream care, manage demand, track appropriateness and influence clinical practice patterns.
Do that, and there is no reason why the NHS cannot prosper. .
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