Health Matters | Paul Corrigan's blog

Given the interest in policy development in the NHS and given the turmoil about the level of resources in all other public services it is easy to forget that over the next few years – and in some cases the next few weeks – there is going to be a series of problems with resources for the NHS which will become increasingly public. Whilst the public presentation of these problems will all be about deficits of one kind or another, their causes will spring from very different policy interventions. It’s important to try and tease out what they are as and when they happen.

One point about the background to this is the politics and economics of the Cabinet. Two years ago, in order to allow the Prime Minister to say that his political passion can be summed up in the three letters N H S, the Conservatives pledged to real increases  in NHS budgets for every year over the life time of this Parliament. Since the election the right of the Tory Party both in the country and the media have questioned this. There is a substantial section who feel that, given the scale of the cuts in defence or police budgets, more money for the NHS should not happen..

However, the leadership of the Tory party have won their position by promising an electoral victory and I think the resource position will hold. That means for the bulk of the Tory party they are prepared to suffer very savage cuts in ‘their’ areas of policy interest so that the new leadership of the Party can ensure power through no cuts in the NHS.

When deficits start to emerge in the NHS this is going to be a puzzling experience for the rest of the Tory Party and the rest of the Cabinet. If these deficits gain some publicity and there is political debate about them, that puzzle could turn into fury.

Because of this very big picture background, the economics of the NHS will gain a very high very political profile. And unless I am mistaken the Tory party, both at its leadership and base, will not be at all prepared for this.

There are two sets of policy drivers that will creates deficits in the NHS – and their interaction will be explosive

First, developing even tighter central control before the development of the market

Second, developing the market.

Developing even tighter central control before the development of the market.

If “command and control” means anything in the NHS it means the money. The attempts by various governments since 2001 to introduce and embed mechanisms of independent commissioning and provision have all met a finance system which sees the control of the money never really leaving Richmond House. Most of the discussions between the centre and the SHA and between the SHA the PCTs and non FT provider trusts are about whether subordinate organisations are keeping to their financial control total.

Within this control there are always a few organisations trying to construct real sets of local plans to buy and sell health care and to construct local incentives for efficiency. They do it in the teeth of a top down approach to money which believes that it can shift the money around to plug holes.

In the winter of 2005/6 this began to come apart because some sizeable amounts of money had left the “top down” control system and were out of the control of the centre in FTs’ surpluses. This caused and causes some fury to NHS head office since it can’t be shifted from FTs to failing organisations because the law won’t let NHS head office reach into FTs and snaffle the money.

Every year this top down approach is creaking a bit more. And every year efforts are redoubled to make it work. In July David Nicholson made it clear that between now and when the new Government reforms come in there will be even more severe top down pressures to ensure that deficits can’t emerge.

The problem with this is that it was creaking with 6-7 % above inflation growth; it will not work with growth of just above inflation.

The NHS is a very large system of organisations. Like any service or industry of size it has some parts that are efficient and capable, and some parts that are not. Often for no reason of poor management but for structural reasons there are parts of the NHS that cannot make their income and outputs balance. This is not unusual; it takes place at in every system. What is unusual in the NHS is that the ones that fail are propped up by the ones that don’t.

In the next two years some parts of the NHS will only break even by getting bigger and bigger bungs. These bungs will have to come from somewhere and the efficient parts of the NHS will not have the resources flowing around to get to the inefficient parts. More of the efficient parts will move into the FT group which means that any surpluses they create cannot be moved around to fill the holes elsewhere.

Top down financial pressure does not stop failure – it simply masks it.

At the moment there are some locations in the NHS where there are considerable deficits. These will be unmasked as the money to cover them up diminishes.

As these emerge the Cabinet will want to know politically why the one public service  they have not cut – the NHS – is going to have a growing series of local explosions of cuts to meet deficits.

A wise Secretary of State will be preparing his Cabinet colleagues for that now.

One of the things he might say is that the main reason for his reform is to get rid of the ramshackle top down system that tries to mask failure. “Dear Cabinet colleagues, that is the reason for our reform programme”. This leads us to the second resource problem.

Developing the Market

In June and  July I posted on several occasions on the topic of how there seemed to a big political clash in the Government’s NHS policy between wanting to unleash the power of markets on the NHS and wanting to stop there being any failure in the NHS hospital sector.

It is this problem that comes to light as the Secretary of State explains how the new policies are going to stop the current ramshackle top down system. Slide 1 will show how a series of markets can be introduced into the NHS at every level. Slide 2 says how the White Paper will sharpen up incentives within existing providers and how to introduce new providers into the system. Cabinet loves these slides, they thrill to the rigours of the market being introduced to the stodgy public sector.

But the missing slide 3 would talk about the impact of this upon a system that has not experienced it before. It would warn that in all markets there will be winners and losers. Already, before these reforms, winners in the NHS provider world –FTs- have surpluses of between 2 and 3 billion. So immediately a further market bites there will be losers. An honest Secretary of State would say, on the missing slide 4, that within a year of the introduction of the market there will be between 30 and 40 hospitals in deficit

Missing slide 5 will point out that the success of our reform programme will be to unmask these deficits about 18 months before the election.

Unless the Secretary of State finds those slides for his Cabinet colleagues now, this will all come as a bit of a shock to them when the reforms they agreed to in the summer of 2010 demonstrates that their local hospital is in deficit in 2014.

Not telling them, or the public, means now that the reforms will be blamed for the deficit when in fact the reforms are unmasking deficits.

The White Paper recognises this and talks about in the lonely hour of the last instance that there might be a failure or two.

This is not true.

In 2013/14 the Tory Party will be enraged because it has seen the army and the police decimated in order to fund an NHS they don’t really understand, but they did it to buy peace in the NHS.

But in the run up to the election there won’t be peace. Their own market based reforms will appear to have unleashed deficits and failure all over the country.

Locality after locality many in Tory areas will be up in arms calling for bungs and top down Secretary of State control

Starting to prepare Cabinet colleagues for this now would be a good idea.