NHS Crises

Nick Bosanquet is the professor of Health Policy at Imperial College. He is also a consultant director of Reform (while it describes itself as a non-party think tank, it is certainly pro-market when it comes to public service reform). I do not accept his pro-market views for NHS reforms but I do respect his knowledge of the NHS and his predictions for the future.

Recently at a seminar for Policy Review TV (the contribution starts at 1:20 but the entire seminar is worth watching) he described what he called "Bosanquet's Halloween Shocker" referring to the imminent financial crisis in the NHS. Prof Bosanquet started by giving some historical background:

There have been four rather similar crises in the NHS. These have followed a pattern. Funding and activity had increased by generous funding by government for a time and at some point that hit a funding constraint.

Sounds familiar? The four other financial crises in the NHS history had been when there had been a period when the NHS was well funded followed by a budget squeeze. Prof Bosanquet continues:

If the NHS was a flexible system that could say we will lower our costs, deliver more services and improve quality even though we have got less funding then that might not be a problem. But the NHS is not a flexible system.

In other words, the NHS is not flexible enough to withstand a sudden drop in funding.  In fact, it is arguable that no large organisation is. Imagine the effect on a large commercial organisation if it finds a sudden drop in income, it is doubtful that such a company would survive, so I do not see why we should expect the NHS to be any different.

Bearing in mind the Spending Review allocation of funds to the NHS, Prof Bosanquet predicts that:

Around November the first 2011 many trusts will find that they've not got the funds for the rest of the year. They will be faced with a very hard choice of insolvency or cutting back services.

Although it is clear that the financial crisis will be caused by the Conservative government inadequately funding the service, Prof Bosanquet gives three reasons why the financial crisis this year will be different to the previous four in the service:

1. Patients are more demanding for higher quality treatment
2. Many hospitals with PFI projects have not yet started paying the full charges.
3. The number of doctors being trained has increased and there will be pressure on trusts to find jobs for these graduates.

Prof Bosanquet says that these factors will make this financial crisis much worse than the previous ones, he says that the NHS will face the "father and mother of a fifth financial crisis".

A financial crisis in the NHS will be disastrous. Other than Prof Bosanquet's prediction of hospital insolvency (and remember that Lansley says that he will not "bail out" a trust that goes into debt, hence the hospital will have to close), there will be service cuts which means rationing of treatment. Both of these will result in public outcries. The outcry will not be from a section of the population that the government is happy to ignore (as was the case with the removal of EMA), it will be from their core vote: middle class and predominately older voters. The government will be seriously unpopular, and a Prime Minister like Cameron, who rules with one eye on his reputation, will be tempted to seek a quick fix. The only solution will be to increase funding.

A recent parliamentary report gives the level of funding for the NHS since it was created.The percentage increases in NHS funding is plotted on the following graph.

The interesting point about this graph is that there are periods when funding is fairly constant, followed by sudden dips (for example the dips at 1961, 1969, 1977 and 1996). The dips are then followed by sudden increases. In 1963 following the 1961 dip, funding has increased by 6.6%; in 1970 the funding increased by 8.5% and 1980 the increase was 9.8%. The point is that a sharp cut in funding cannot be sustained, in fact, the NHS has never sustained more than one years cut in funding, and any cut is followed by a sharp increase in the next and following years.

The Spending Review at best gave the NHS flat funding for the next four years, but other analysis suggests that NHS funding will actually be reduced by a small amount (John Appleby of the Kings Fund says that there will be a real terms decrease of -0.3%) every year until 2015. As you can see from the graph above, the NHS has never sustained a period of flat funding. The closest are 1961, 1969 and 1996 which were all followed by sharp increases in funding the following year.

However, the Spending Review funding is not the whole story. The NHS will have to make £20bn "efficiency savings" by 2015. This is a cut of about 4% year-on-year. The NHS has never suffered a cut that large for so many years. The graph above shows that when there has been a single year of cuts it has to be followed by several years of large increases in funding. These were the financial crises and the subsequent increases were due to the public demanding more funding.

So what will happen if there is no large subsequent increase in funding? One thing is very clear: the government will be extremely unpopular and there will be huge pressures on Lib Dem and Tory MPs to do something about the funding crisis. Cameron will have the dilemma of losing the support of his MPs or to raise funding. My guess is that he will choose the latter and we will see a real increase in funding in 2011/12. The public will also demand more than just extra funding, they will demand the head of the person who caused the funding crisis and that will mean Lansley will be replaced.