1.1. Patterns of spending

Two widely noted trends in NHS spending during the past decade have been the increase in commissioning from non-NHS providers, and the growing proportion of the budget spent on secondary rather than primary care (Nuffield Trust, 2014a). Our figures show both trends clearly continuing.

Our estimates using PCT accounts data show that in 2012/13, £9.7 billion was spent on commissioning secondary care services from non-NHS providers. The Nuffield Trust has not yet been able to obtain CCGs accounts data for 2013/14. However, the NHS England annual report and accounts for 2013/14 reported spending of £10.2 billion on healthcare purchased from non-NHS bodies (NHS England, 2014).

In 2013/14, the NHS budget overall rose by 2.4 per cent in real terms. However, NHS England’s annual report and accounts reports spending of £7.6 billion on GP services. That represents a decrease of 5 % compared to PCT accounts data from 2012-13 which reported spending on GP services to be £8 billion in real term. Although spending on GPs has fallen consistently in recent years, this is a particularly pronounced drop. It comes even as NHS England and many commentators, including the Nuffield Trust, have argued that alongside major reform, general practice will need significantly more rather than less spending in order to meet its potential in the future NHS.

1.2. Provider finances

According to the most recent update, the reported financial position of NHS trusts has declined by £689 million from its overall surplus of £596 million last year into a net  deficit.

These figures, however, include the financial support which the Department of Health puts into trusts facing deficits so that they can meet payroll and other costs. Removing this financial support would reduce the surplus seen in 2012/13 from £596 million to £390 million (Nuffield Trust, 2014a).

Underlying this is a divergence between operating income and operating cost. Last year NHS provider income grew in real terms in 2013/14 (by 1.3 per cent). Their operating costs increased at a slightly faster rate (by 2.2 per cent).

1.3. Variation in financial performance

Breaking these headlines figures down, we can see that these financial challenges are concentrated in trusts with particular characteristics.

Geographically, the East of England was last year the region with the largest deficit, at £115 million. Figure 4 shows provider reported financial performance. In 2012/13 all English regions reported a net surplus. However there are marked difference in 2013/14 provider financial performance. Every region saw its financial performance decline, and seven out of ten retained a net deficit.

In 2013/14 acute trusts were the most financially challenged. They made a net deficit of £436 million (without taking into account central financial support to NHS providers).

Figures from Monitor, the independent regulator of Foundation Trusts, show that in the first quarter of the 2014/15 financial year 86 out of 147 trusts have gone into deficit. The Trust Development Authority, which oversees other trusts, reports that 33 out of 98 currently believe they will be in deficit by the end of the year. Already, deficits across both sectors total more than £450m over the year to date. Both authorities note that in aggregate, trusts are significantly underperforming their plans (Monitor, 2014; NHSTDA, 2014).

Within the acute sector, there remains a divide between general acute hospital trusts and teaching hospital trusts, with the latter performing much better. Meanwhile, using definitions from the National Reporting and Learning system, smaller general trusts (with around 250 to 500 beds) continue to perform better than larger ones (with up to 3000).

All classes of acute trust have seen significant deterioration in their financial positions. The overall surplus of teaching trusts has fallen by half to under £90 million.

In 2013/14, 105 NHS and foundation trusts, combined, spent £699.85 million on PFI financing costs.

A scatter plot of trusts with a PFI against their financial performance shows a loose negative association. This suggests that larger deficits are to some extent related to higher PFI costs.

2. International comparisons and the longer term picture

2.1. Historic and international context

Chronologically, the story of funding pressures in UK healthcare is well known. Looking at UK-wide data, since 2009 growth in health spending has first fallen and then moved into decline. Following an average annual growth rate of 5.6 per cent between 1997 and 2009, the average real growth rate has fallen to -0.7 per cent (ONS 2014).

According to the most recent international figures, the UK now spends the same proportion of its national wealth as the OECD average (9.3%). This is less than many European countries (France: 11.6%, Germany 11.3%, Netherlands 11.8%) but more than some European nations which have been hit harder by the economic crisis (for example Ireland 8.9% and Italy 9.2%) (OECD 2014).

While internationally comparable UK-wide figures only extend to 2012, we know that the English NHS, the largest component of UK healthcare spending, has continued to see slower spending growth. Average annual spending here has risen by an average of only 0.7% in real terms over this parliament.

2.2 Trends following the economic crisis

Many European countries have faced similar (or worse) budgetary pressures on public spending in the wake of the economic crisis. A recent review of how European countries have responded to this in terms of their health spending found that the funding arrangements and universal nature of the NHS meant patients in the UK have been spared some of the policies that have characterized other nations’ responses to the crisis. A total of 24 European countries have either introduced new user charges or increased existing charges, or abolished entitlements. Ireland has ended free primary care for wealthier older adults, while Greece and Germany have developed new benefits packages limiting the procedures provided (WHO 2014).

The report notes that the funding crisis has prompted reform strategies across Europe which may well improve efficiency, such as switching from branded to generic drugs, reducing inappropriately long lengths of hospital stay and inappropriate admissions, and reducing medical errors (some of which have been deployed in the NHS). There are also longer term strategies which are vital to increase efficiency and sustainability in the future, for example, strengthening primary care, increasing access to non-hospital based health services and improving the skill mix of staff, not all of which have taken place in the English NHS.

Our research has shown, for example, that secondary care received the lion’s share of growth during generous years of spending from 2006 to 2010. The share of the total budget going to primary care is now smaller than it once was. In the last financial year, 2013/14, figures from NHS England show spending on GP services 5% lower than accounts from Primary Care trusts the previous year (Nuffield Trust, 2014b: NHS England, 2014).

Understanding how the UK’s publicly funded social care system has fared compared to other countries is problematic because the UK no longer submits data to the OECD on what is known internationally as “long term care”. The King’s Fund’s recent review commented that the most recent estimate of the proportion of GDP spent on publicly funded social care (0.9 per cent between 2006 and 2010) was fractionally above the OECD average for the same period (0.8%) but well below that of some European nations, (2.3% in the Netherlands for example) (King’s Fund 2014).

But what makes the English social care system unusual is the gap between the universal nature of health services and the heavily rationed public social care system, which has grown wider as social care budgets have come under much greater pressure since 2010. The most recent social care data suggests that almost 300,000 fewer older adults now receive publicly funded community- based social care in 2013/14 than in 2009/10 against a backdrop of rising demand as the population ages. These people will now be funding their own care, relying on their families, or going without support altogether. Very little is known about the quality and volume of care they are using and any subsequent impact on health services (Nuffield Trust and Health Foundation 2014).        

3. Future prospects

3.1 Future pressure on hospitals

The Nuffield Trust, Monitor and NHS England have all produced estimates of future “funding gaps” between health service budgets and the rising cost pressures generated by increasing demand and health cost inflation. The next step is to look at the trends and drivers of pressures within specific services, and look at the possibilities for ameliorating them. The Nuffield Trust recently carried out work measuring trends in hospital admissions in England since 2006/7, extrapolating this forwards, and considering the impact on resources and capacity.

We found that hospital admissions have been growing 60% more quickly than demographic change would have implied. Yet these demographic estimates alone suggest upward pressure will continue – and in fact, accelerate. If this was the case, the NHS would need to be capable of providing for 6.2 million more bed days by 2022. This would require 17,000 more beds – enough for 22 new hospitals. The costs incurred would account for one quarter of the widely cited potential funding gap of £30 billion around the start of the next decade (Nuffield Trust, 2014c).

Yet these trends up to last year did not drive a similar increase in beds, which actually fell from 127,000 to 106,000. This was partly because the length of stay of the average patient was consistently reduced. Between 2006 and 2013, time as an inpatient for those hospitalised more than a month fell by 13%. The NHS also now manages to run hospitals “hotter” – closer to full capacity – than it did in the past. Bed occupancy has risen from 85% to 90% (Nuffield Trust, 2014c).

Finding ways to continue this past success could greatly reduce the impact of future pressures, as it did for those up to 2013. This past record adds to evidence suggesting that reducing length of stay in hospital may ultimately be a more promising source of savings than reducing hospital admissions. Reduced admissions have been adopted as the single key goal for the Government’s Better Care Fund, but the evidence for any initiatives successfully reducing them is thin on the ground.

Transfers out of hospital take place within the system, and may be more straightforward to manage than keeping people from being admitted in the first place. There are clear areas for focus: we estimate that cutting lengths of stay by a quarter for just the minority who stay in hospital longer than two weeks would free up all the bed days needed up to 2021 (Nuffield Trust, 2014c).

We believe these savings could come from a range of measures. Hospitals should keep switching more patients to treatments that take place within a single day, and tailor their capacity to suit this. Departments inside hospital need to work better together, and with other services, around efficiently transferring and discharging patients. Lastly, there needs to be more investment in intermediate services so that social and community services can provide the overnight care some patients will need outside hospital. With social care services cut significantly, we are concerned about the potential for such services to meet this challenge.

3.2 Impact of TTIP

The Transatlantic Trade and Investment Partnership (TTIP) is a planned trade agreement between the EU and the USA. Negotiations on it began last year, and the Government currently hopes to conclude them in 2015 (BIS 2014).

Concerns expressed about the impact of TTIP on the NHS centre on the idea that it might enable foreign investors to sue the government, outside the British legal system, in order to overturn any NHS policy change which reduced their profits or access to the health services market (BBC 2014).

It is important to note that EU and UK procurement law already means private companies can take legal action if their bids are not treated equally once a Government or NHS body has decided to undertake a procurement exercise. However, there are concerns that TTIP might add to this by allowing companies to take legal action on the question of whether or not such services are put out to the market in the first place.

The directorate responsible for negotiating the treaty and the Department for Business, Innovation and Skills (BIS) both claim that TTIP will contain exemptions from this kind of legal challenge where public policy choices are concerned. The EU team has said categorically that “the EU’s bilateral agreements either exclude or make specific reservations for publicly funded healthcare systems”. On the nature of these reservations, they claim that member states will still be able to control access to health services markets by foreign suppliers. Even if these suppliers are given access, there would be no “ratchet clause” banning this from being reversed (EC 2014).

The exception would be where a foreign company argued that a policy change constituted “expropriation without compensation, a denial of justice or manifestly arbitrary treatment”. The EU negotiators claim that this would not happen, because any activity found by an international tribunal to fall under these categories would be illegal under British laws which the Government is already bound to follow. Although we do not know the exact provisions of TTIP on treatment of investors, the circumstantial evidence supporting this claim is relatively strong. Despite over 90 trade deals, most including investor state dispute settlements provisions, the UK has never lost a legal case which was based on the provision of these treaties (EC 2014, BIS 2014).

3.3. Conclusion on future outlooks

The financial outlook for the NHS and social care looks very challenging indeed. As we and others have shown, hospital finances are weak and deteriorating. Even though the most worrying examples of this remain amongst hospitals affected by large PFI debts,(predominantly larger district hospitals), the financial performance of Foundation Trusts – those hospitals we would expect to manage their finances – and the declining surpluses of acute teaching hospitals show all hospitals are finding it harder to make ends meet.

There is a tendency towards over-optimism about the potential for care outside of hospital, and integrated care, to reduce pressures on the NHS. However, carefully reducing lengths of stay could prevent the need for additional hospital beds in the future. But with primary care funding cut by 5% in the past financial year, and 300,000 fewer older people able to access publicly funded social care, it is hard to see how out of hospital care can meet the need without substantial investment. Without a well thought-through short term response, back up by a credible long term strategy for managing financial performance, the NHS in England is heading for a funding crisis this year or next.

References

BBC: Walker, A (2014) Concerns rise over US-EU trade talks http://www.bbc.co.uk/news/business-29572475

Department for Business, Innovation and Skills (2014) Government Response to the House of Lords European Union Committee’s 14th Report https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/329716/42014-Cm-8907-Transatlantic-trade-and-investment-partnership.pdf

European Commission [Directorate-General for Trade]: Garcia Bercero (2014) Letter to Rt Hon John Healey http://trade.ec.europa.eu/doclib/docs/2014/july/tradoc_152665.pdf

King’s Fund (2014) A New Settlement for Health and Social Care Available at: http://www.kingsfund.org.uk/sites/files/kf/field/field_publication_file/Commission%20Final%20%20interactive.pdf

NHS England (2014) NHS commissioning board Annual Report & Accounts 2013–14 www.england.nhs.uk/wp-content/uploads/2014/07/nhs-comm-board-ann-rep-1314.pdf

Monitor (2014) Quarterly report on the performance of the NHS foundation trust sector: 3 months ended 30 Jun 2014. Available at https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/356357/BM1492_NHSFT_quarterly_performance.pdf

NHS Trust Development Authority (2014) NHS Trust Service and Financial Performance Report for the four month period ending 31 July 2014. Available at http://www.ntda.nhs.uk/wp-content/uploads/2014/07/Paper-E-Service-and-Financial-Performance-Report-for-July-2014.pdf

Nuffield Trust (2014a) Into the Red? The state of NHS finances. Available at http://www.nuffieldtrust.org.uk/publications/red-state-nhs-finances

Nuffield Trust (2014b) Is General Practice in Crisis?

Nuffield Trust (2014c) NHS hospitals under pressure: trends in acute activity up to 2022. Available at www.nuffieldtrust.org.uk/sites/files/nuffield/publication/ft_hospitals_analysis.pdf

Nuffield Trust and Health Foundation (2014) Cause for concern: QualityWatch Annual Statement 2014. Available at:  www.qualitywatch.org.uk/sites/files/qualitywatch/field/field_document/QW%20annual%20statement%2014%20%28final%29.pdf

OECD (2014) OECD Health Statistics 2014 - Frequently Requested Data Available at: www.oecd.org/health/health-systems/oecd-health-statistics-2014-frequently-requested-data.htm

Office for National Statistics (2014) Expenditure on healthcare in the UK: 2012. Available at: http://www.ons.gov.uk/ons/dcp171766_361313.pdf

WHO (2014) Economic crisis, health systems and health in Europe. Available at: http://www.euro.who.int/__data/assets/pdf_file/0008/257579/Economic-crisis,-health-systems-and-health-in-Europe-impact-and-implications-for-policy.pdf?ua=1

3 November 2014