Today I have published a pamphlet through an organisation called Social Finance that argues for the use of a form of investment called the Social Impact Bond into the NHS. It’s called “A new way to invest in better healthcare (Paul Corrigan Social Finance Sept 2011)”. In one way it’s a radical idea because it argues that the NHS needs to develop resource allocation that moves beyond the year-on-year financing dictated by Treasury Rules. In another it’s very commonplace in most other areas of our lives. We invest money this year to make money in future years and we can ‘rollover’ the cost and benefit of the investment, and the costs, on a year-on-year basis.
At the moment any value for money improvements the NHS achieves are limited in part by the annual funding model enforced by Treasury rules. Over the years the rule, that sees the NHS having to receive and spend its money within the same calendar year, may have improved its accounting capabilites – but has developed very little in the way of economics. For commissioners this means that the money they will obtain from the DH needs to balance annually the amount spent – then all will be well. Within a single year it is almost impossible to develop any real return on that annual investment and given it has not been allowed, most NHS organisations have not bothered to learn how money, if spent in a new way, could produce a much greater return on investment over, say, five years.
But the NHS has now embarked upon a new long-term funding reality – where the annual increase in demand will have to be met with a much smaller annual increase in resource. If it doesn’t start to think, at least in part, about a longer term economic model than one year it will be in big financial trouble. If the NHS is to become a sustainable health service, a proportion of its funding should be spent within a longer term model than is currently allowed under the Treasury annual accounting rules for public money.
As an argument this is not at all new. Indeed for most of the last 30 years people have been arguing that the NHS needs to evolve from a sickness to a health service, but they have expected it to make this change whilst continuing to earn only the kind of return on investment in health that can be made within a single year.
This is not possible. The NHS needs to develop some resources that will work as an investment in health care and that will, over time, provide a return on that initial outlay. Over the next year it is probable that a number of services for NHS patients will start to develop both their funding, and their economics, through Social Impact Bonds. Since funding for all services will, in the long term, still come from national taxation this in no way replaces the traditional funding model for the NHS but it will over time, and for particular services, create a new economic model.
This five year model of funding involves a challenge to the current economic culture in the NHS. It will help to develop significantly better longer term services for the same input, but that input would be worked on over a five year period. Social Impact Bonds are a new financial vehicle that attract non-governmental investment to the NHS. They consist of what could be a five year bond – raised and invested in a very specific NHS service, for very specific patients. Over this period the service would save expenditure that would otherwise have been spent on health services for these patients, but that will be saved by the improvements brought about through using longer term investment. Before investment is made it would have to be demonstrated that a return on investment will be made by reduced demand for health care from patients. The bond is repaid from these savings.
The pamphlet I am publishing today suggests that, in particular, services for patients with long-term conditions will benefit most from this new financial intervention – given that over two thirds of NHS expenditure is being spent on people with long term conditions. We know that for some patients with long term conditions the capacity to spend the resource coherently over a 5 year period would provide much better health outcomes – and a much better return on that investment.
Over the past few years a considerable number of new health services have made the case that if invested in – millions of pounds would be saved for the NHS further down the line. But in truth very little real money has ever been saved. This is partly because the economics of these promised savings have never been obtainable within the annual cycle of investment, and partly because no one has ever treated the idea of a return on investment as a real possibility.
The Social Impact Bond challenges new health services for NHS patients to transform that promise into reality.
Changes will be needed within the NHS to firmly link outcomes with finances. But these are changes that the NHS wants to make in how it understands the relationship between the input of resource and the outcomes of health care.
At a time when the NHS needs to demonstrate a real return on the investments being made in it the Social Impact Bond provides better medium term value for money. Over the next year we now need to get on with demonstrating how services for NHS patients can be developed within this model to realise the necessary longer term return on investment.
Over the coming year I will be discussing how this new form of finance can be used within the struggle for value for money in which the NHS must engage.