The NHS efficiency challenge: is a Transformation Fund the answer?

24 July 2015

NHS finances are rarely far from the headlines. Over the course of the Election campaign the NHS debate was dominated by the £8 billion price attached to the “Stevens plan”. The tables turned after the Election as the NHS was told by the Health Secretary it was time “to deliver its side of the bargain” with a colossal £22 billion in savings by the end of the Parliament.

Huge savings are undoubtedly possible within the £110 billion NHS budget. The Five Year Forward View identified three big areas: prevention and reduced hospital admissions (25 per cent of savings), better procurement (25 per cent), and the “voluminous” savings opportunities in the provider sector (50 per cent).

These savings, however, come at a difficult time for the frontline. Over half of NHS providers ended last year in the red with a deficit of more than £800 million, up from £100 million in 2012-13. Some have suggested that could spiral to nearly £2 billion this year. Looking forward is no more optimistic, with an official review of trusts’ five-year plans showing that less than a third of them would secure a sustainable future. As David Bennett, outgoing Chief Executive of Monitor, has said, “Put simply, this is unaffordable.”

In some ways it is therefore unsurprising that the idea of a Transformation Fund for the NHS hit the headlines once again this week. The King’s Fund and the Health Foundation have called for a fund of at least £1.5 billion a year to allow for upfront investment and to cover “double running” costs as old services are phased out to make room for the new. Many of the changes proposed by Stevens, such as a focus on prevention and the move towards more integrated services, are unlikely to realise savings until the back end of the Parliament at the earliest. Upfront investment until then, they argue, is essential. Indeed the £2 billion announced in the Autumn Statement was presented as a “down payment on reform” to break the gridlock in the system.

This raises two big questions. First, where would this money come from? This week’s report argues some additional funds could be found by selling off surplus estate, raising a one off sum of between £700 million and £1.5 billion. The lions share therefore would need budget increases in addition to the £8 billion. Yet with the Treasury demanding 40 per cent savings from the un-protected public services, it seems unlikely that the Government would add to the already comparatively generous settlement for the NHS. Arguably the focus on a centrally resourced fund misses a trick, overlooking the potential for private sector investment and risk sharing arrangements.

Second, would this money catalyse the change required? There is a real risk that additional funds get lost in the system. Much of the investment put into the NHS between 2000 and 2010 went towards higher pay and prices. What guarantees will there be that any transformation funds can be put to better effect this time? Already budgets set aside for innovation have been raided to plug gaps and prop up A&E. The news of an additional four years of pay restraint came as a surprise to many, but as Simon Stevens has alluded too, this cannot last forever.

Indeed by focusing on a Transformation Fund could this in fact distract from the bigger issues at hand when it comes to implementing a change programme of this magnitude, from leadership to financial incentives in the tariff to overcoming profound organisational silos.

From the police to local government, we saw in the last Parliament how budget pressure could be a catalyst for change, forcing public sector leaders to take the tough decisions put off in better times. The danger is that now the Treasury has conceded once, will there ever be enough money for NHS leaders?

Cathy Corrie, Senior Researcher, Reform

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