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As the NHS faces budget cuts, where can savings be made to ensure pharma is not left high and dry?

toilet_roll The NHS faces tough financial times over the next five years. The past ten years have seen significant increases in health spending, taking the NHS budget to over £100bn, but David Nicholson, the NHS supremo, is putting out signals that the glory days are over and that, by the time of the next comprehensive spending review in 2011, the NHS could face a £15bn shortfall in funding.

The NHS budget has come in on target over the last few years and surplus funding has remained, but with public finances facing a £150bn black hole as a result of recession, it is highly unlikely that the Treasury will allow any public spending department to hang on to unspent monies. This means NHS spending will be cut in the medium term; a bleak prospect indeed. What might this mean to the health sector and what can pharma do to mitigate the impact?

The Chancellor has decided to postpone the comprehensive spending review, which was to start this year. This would have given us some idea of spending plans beyond 2011 but, instead, we are left making predictions. A £15bn shortfall, however, represents a gap of over 10 per cent and so how any future government handles the public finances as we emerge from recession remains a crucial political challenge. Regardless of which party wins the next election, tough decisions on the NHS are inevitable.

If we are to continue delivering a health service based on general taxation, which is free at the point of need, then the drive for greater efficiencies and better value for money will loom large in political decisions after the next election.

NHS Foundation Trusts (FTs) have been established as public bodies able to function more like private sector businesses. Between now and an election we can expect a push to make as many FTs as possible ready to operate competitively. Any new government would be wise to expand the role of other non-NHS providers as quickly as possible, including the private and voluntary sectors. Currently, the vast majority of the tax payer's money in health goes to NHS providers in England, with non-NHS providers getting a minimal slice of the action. There are some exceptions where private providers have proved capable of filling gaps in niche markets, eg in the provision of secure mental health services, specialist mental health services and in elective surgery in diagnostic and treatment centres. PCTs are hastily setting up structures that will divest them of any provider function by 2010. Most are keeping their provider arms in the public or not-for-profit sector, where the NHS will retain a fairly monopolistic position in community-based health services. Can this continue if NHS budgets get tighter? Probably not.

If the budget shortfalls are to be met without large cuts in front-line patient services, real commissioning – which ensures providers really do offer quality and best value for money – will be vital. I predict that PCTs focusing on commissioning only will look to expand the plurality of providers of services to NHS patients. Providers in the private and voluntary sectors could take over the services from poorly performing NHS bodies and offer better value for money to the taxpayer. This would certainly prove attractive to an incoming Conservative government. Meanwhile, Gordon Brown is pushing ahead with a 'marketised' NHS in true New Labour style. As long as services are funded through taxation, led by accountable public institutions and free to the public when needed, government will be free to expand the number of providers. The unions will fight it tooth and nail, but will the public mind? Probably not.

Trusted UK companies like Boots and Virgin are already looking at opportunities to provide NHS services, so why shouldn't Tesco and Sainsbury's join the game and offer aspects of primary care from their easily accessible sites? Why not base GP services in a more convenient setting and let parents do the shopping and get the kids' health looked after at the same time? The private sector already provides walk-in services in a variety of handy locations, including major London rail stations. Why shouldn't they be able to expand the model for NHS patients in many more locations? In addition to UK companies, we can also expect some big players from the US and Europe to enter the NHS.

Another way to generate savings and protect front-line services is to take a good, hard look at the number of quangos swarming around the NHS. At the recent NHS Confederation conference, I counted at least 10 arms-length organisations, all funded by the taxpayer, all under the broad umbrella of the Department of Health (DH), including NHS Professionals and NHS Innovation, for example. All have corporate headquarters, a top executive team and armies of people working for them and costing millions. This army of quangos has grown significantly in recent years. While many are desirable, somebody needs to ask whether they are essential.

NHS Direct and its equivalent in Scotland, offering 24-hour help via the phone, are very convenient services for the public, but are they vital and could they be provided at lower cost by private providers? If the public was offered a choice of keeping this service at the cost of closing community hospitals, I am pretty confident it would opt to keep local services. NHS Professionals essentially provides a NHS staffing agency. Is a public sector provider in this area really the most cost-effective solution to hiring agency staff in the NHS? Could the private sector do this more cheaply and effectively? If we are to keep innovation and excellence moving, do we really need a DH-sponsored quango to do this? Could we not give some of this money to respected outfits like the King's Fund and the management centre at Birmingham University and let them drive this agenda? Millions of pounds could – and should – be saved in "quangoland" at the national level of the NHS and the next government will need to take a critical look at this huge chunk of expenditure.

The next area ripe for review is NHS regulation and oversight. We currently have Monitor, the newly-formed Care Quality Commission and 10 Strategic Health Authorities (SHAs) all dipping their fingers into the running of the NHS. If many more providers are to become FTs, do we really need all these regulators? Monitor and the Care Quality Commission could quite simply be slimmed down and merged; it is nonsense to keep two bodies, both scrapping to protect their role and function. A merged and streamlined  regulatory framework would release millions and might actually be more effective and less onerous and wasteful for those who actually provide front-line care and services. If FTs are the way ahead on the provider side of the NHS, are 10 SHAs really needed? Surely these bodies could be trimmed back considerably or abolished, with key local regulation functions passed on to the newly-focused PCTs. Again, if the public had the choice of protecting local services or cutting back on the monolithic structures governing the NHS, I bet it would choose local services every time.

In addition to the talk of losing 10 per cent of funding by the next financial year, NHS finance directors also suggest that local government may face even bigger cuts of between 15 and 20 per cent. This is a huge loss of income, which will directly hit many of the poorest and most deprived in our communities. If the axe falls on front-line services, and the bureaucracy remains intact, then the public will be indignant – and rightly so. The NHS and social services in local government will really need to look at how they can work better together to provide some protection of services for people with mental health needs, learning disabilities, vulnerable children and older people.

Pay question
The final big question is what will happen to pay in the NHS? In the private sector, we have seen salary freezes in many companies. British Telecom has sliced its workforce and is now offering staff three months' pay to stay at home for the rest of the year. British Airways has frozen pay and is asking staff  to volunteer to work for a month for free to stave off further job losses. Staff salaries consume around 75 per cent of the NHS budget and healthcare is a labour-intensive service. Will staff in the NHS continue to enjoy automatic annual pay rises and incremental salary scales? A recent report from the Audit Commission suggests this is not sustainable. Again, the unions and NHS staff are likely to be bitterly opposed to such an idea, but if the Audit Commission is prepared to think things that were once unthinkable, then an incoming government will need to do the same.

The UK economy is in uncharted waters. The public finances are way out of kilter and the next government will have to bring things nearer to balance over the coming five years. The only options are to raise taxes, set tougher public spending plans and priorities, or a combination of the two. Failure to do so will have a profound impact on the credit rating of "UK plc" in the world, in which case we might not even have a health service left to protect! The pharma sector will be working with NHS customers facing a very tough set of choices. Quality and value for money will be paramount to all decisions in the minds of NHS Commissioners. Those that do business with the NHS will do well to remember that.

The Author
Ray Rowden is an independent health policy analyst and a member of the Labour party, writing in a personal capacity.
To comment on this article, email

7th September 2009


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