The NHS is in real danger of being unaffordable

The Nuffield Trust forecasts a funding gap of £44bn in the NHS by 2021-22. Even if the efficiencies of the “Nicholson challenge” are achieved, this funding gap would still be £28bn due to the rising costs of healthcare.

‘Without exception, trusts will need to plan sooner and more effectively for the longer term to ensure they can continue to deliver quality services’

Figures from Monitor show that foundation trusts are ahead of targeted savings by £23m, having saved a total of £201m in 2012. This is an encouraging and highly responsible start, but Stephen Hay, managing director of provider regulation at Monitor, has warned against complacency.

He says: “To meet the challenge of financial pressures in the medium term, all trusts will need to understand the forces at work within their local health economy and develop strategic plans to deal with them. Without exception, trusts will need to plan sooner and more effectively for the longer term to ensure they can continue to deliver quality services.”

Rise in gross deficit

In 2012, Monitor reported a fall in the number of trusts in deficit from 36 to 26 (out of 144). But this disguises the rise in the gross deficit: at Q2 2012 it was £90m compared with £79m in Q1. Monitor forecast in its 2012 annual review of foundation trusts’ plans that an increasing number are at risk of breaching their terms of authorisation for financial reasons in the next few years. Some of those at greatest risk are struggling with unaffordable private finance initiatives.

The NHS is accustomed to its budget rising by more than inflation to deal with an ageing and growing population − this has ended. And the challenge facing NHS finances may get tougher.

In October 2012, in his first interview as health secretary, Jeremy Hunt warned that the Conservatives might not promise to protect the £110bn of spending in 2015 as they did before the last election because while it would be his “instinct” to ensure spending on the NHS increased in real terms, this might not be realistic.

At the same time, the NHS may also have to find up to £5bn a year to pay for the Dilnot reforms, which propose a cap on how much the elderly must pay towards social care.

Lack of optimism

Finance directors are not optimistic for the future. In a survey for the King’s Fund in September, 40 per cent said that patient care would get worse in the coming years and the NHS would miss its £20bn efficiency savings by 2015.

‘Those who have a real track record of delivering these complex schemes have the best chance of achieving the necessary success’

To partially address this, the Treasury has recently targeted savings in excess of £1.5bn from existing PFI contracts, so trusts with PFI projects can expect to make significant savings. In the early 1990s, PFI was seen solely as a contractual mechanism, whereas in reality trusts were entering into a long-term business relationship with the private sector.

All too often, when challenged initially, both the public and private sector will resist change to the body of contracts that comprise the project with a terse: “That’s what was negotiated.”

However, there are more important issues at stake in today’s (and tomorrow’s) world than blind contractual adherence. Continuous dialogue between parties is a prerequisite to any good long-term business relationship. Timeliness and openness must also be in the mix to ensure that all parties fully understand the nature and scale of the issues confronting them.

Real risk

Without such dialogue, none of the parties concerned can work effectively together to ensure the continuing delivery of affordable services within a physical environment that may well need to be changed as clinical delivery patterns and funding levels change.

The results of this dialogue must be capable of being made real within agreed timescales and those responsible for delivering the changes must ensure that old attitudes of acceptance and minimal change are cast aside. These twin roadblocks, combined with organisational inertia and apathy, will prevent the NHS and its PFI partners remaining fit for purpose in the years ahead.

Without freeing up the time of senior managers today to enable them to work in this way, the NHS stands in very real danger of becoming unaffordable. There are already several practical examples of real and repeatable cost savings exercises being delivered and this body of evidence must grow in the coming months and years. It may well be that additional external support is also required to ensure the success of such initiatives.

Experience to date suggests those who have a real track record of delivering these complex schemes have the best chance of achieving the necessary success.

Alan Jessop is founder of AJ Consulting and leads the Chartered Institute of Public Finance and Accountancy’s PFI renegotiation service, ajconsult@hotmail.co.uk