Is the NHS now at a critical juncture in its history? How will it operate in the incoming financial storm? Alan Jones reports.
The NHS New Year has now started and the NHS modus operandi for the year ahead is now live. An important document at the moment is the Operating Framework for the NHS in England for 2010/l1, published last December, which sets out the priorities for your NHS customers over the next 12 months – particularly for payers. These key priorities will have a significant impact on your business this year. The full document is 52 pages long, but this article will highlight some key areas, as well as provide some ‘take-home’ points.
Hard times ahead
Earlier this year, Pf published a piece on the white paper NHS 2010-15; from good to great. This new five-year NHS Plan mapped out a slight change of direction by Government, who had to acknowledge the incoming cold financial winds. This year’s operating framework is year one of its implementation.
Planning for the tough financial climate ahead is at the heart of this year’s Operating Framework. There will be some growth in 2010/11 but a big freeze will follow, where up to £30bn of efficiency savings are required. The UK economy may be emerging from the recession, but the NHS is just about to enter one. So, although the national priorities largely remain the same, a number of shifts in national policies are set out. Hospital-based care particularly will be restructured (and even downsized) and management levels are to be reduced.
Implications for hospitals
There will be difficult times ahead for hospitals because big changes are planned to ‘payment by results’, the acute sector’s financial lifeblood. The more accurately titled ‘payment by activity’ has encouraged overheating in the hospital sector and driven up costs. And despite the focus on care closer to home, hospitals have expanded, with the numbers of consultants growing faster than GPs. So there are some hard hitting measures to cut the cost and number of hospital procedures.
A two-part NHS tariff capping system will be newly introduced, where a set level of emergency procedures will be paid for at full tariff price but over that volume hospitals will only get 30%. Tariff prices are also to be frozen and the only extra income (apart from increases in volume for elective care) will come through the Commissioning for Quality and Innovation (CQUIN) scheme. Hospital income will depend on improving the patient experience, and PCTs will be handed the power to withdraw payments where they judge that care is below par.
‘Best practice’ tariffs (probably at a lower price) are also being introduced to ensure the highest quality care. These changes to the tariff are designed to reward quality but also incentivise care outside hospitals. The net result of all of this maybe that hospitals become trapped in a rather uncomfortable ‘pincer movement’ where they will have to drive down costs while their activity levels also fall. There are predictions that hospitals could run up deficits of around £7.5bn a year by 2015. To balance the books, cuts in ‘heads and beds’ might be necessary. The tariif moves are another attempt to shift the balance of power away from Acute Trusts towards PCTs as commissioners; while the marginal tariff is clearly an attempt to force a discussion about risk-sharing in relation to unplanned admissions and improving demand management. There is also something extraordinary about giving Foundation Trusts the opportunity to run community services.
The focus is on vertical integration between acute and community services. There will be a new deadline for all hospitals that are not yet foundations to submit their timetable for achieving this status by 2013/14 – otherwise they risk a takeover by another Trust. This all points towards some major ‘turbulence’ in this sector; we will see more mergers and possibly wholesale hospital closures.
Implications for commissioners
The NHS will face its biggest financial challenge in the next generation and the document suggests taking costs completely out of the system – including admin costs, commissioning costs and management costs. NHS managers will take a hit again, as there is a target for PCTs and SHAs to reduce their management costs by 30% over the next four years.
Although it is not long since PCTs faced ‘the night of the long knives’ (in 2006/7, when the current number of 152 PCTs was created), this level of savings could result in management functions being merged with other organisations and up to 6,000 PCT and SHA jobs could go. And yet the DH wants commissioning to significantly improve. Other commentators are arguing that up to £1.5bn is wasted on ineffective interventions, so there will be a greater focus on the decommissioning of services and treatments that bring little benefit to patients.
The document also contains a renewed emphasis on prevention, integration of care, care closer to home and self care for long-term conditions, which are also seen as reducing costs. However, an Audit Commission report last year suggested that PCTs have made little inroad into transferring care from hospitals to the community and the annual 2009/10 report from the National Quality Board showed that high hospital admission rates in areas like COPD and diabetes are a measure of the (lack of) quality of primary care. So there is still a lot of work to be done. The Operating Framework points out that care closer to home would achieve better outcomes and save money – up to £2.7 billion a year. So there is likely to be new pressure on consultants and GPs to agree local care pathways and more consultants working in the community. In primary care, there will be major reforms to QOF from 2011 (less money and harder targets) with the ‘regulation’ of GPs by the CQC to follow. There is even a suggestion that the GMS contract might need to be renegotiated to return it to a 24/7 service. There will also be more focus on primary care resource usage, with tougher sanctions for those with unjustifiable spends and a particular focus on prescribing.
Thus concludes our quick tour of the NHS until April 2011. There may be an impending election, but whoever is in power this June will still have to deal with the impending NHS funding crisis and these plans are unlikely to substantially change over the shorter term. This Government is now saying that the urgent £15/20bn savings will no longer be ‘cashable’ savings, but a reinvestment in ‘front line’ services, to cope with rising demands. The key message is that after years of unprecedented growth, the NHS now faces a period of unprecedented austerity. Prepare for a bumpy ride.
Ten key take-home points
1. Policy documents like this come out with great regularity. Have you been briefed internally as to its implications for you? How does this work in your company? Certainly this document is an organisational ‘must-read’ and a detailed analysis is required. Chapter 3 is the key section (pages 27-43).
2. Acute Trusts are likely to feel the icy cold winds of recession first. Significant reconfigurations are likely. Is it time for ‘real’ account management in hospitals, rather that just KAMs working a few selected (key) hospitals (accounts)?
3. Expect the numbers of PCTs to fall, but do not pull back on your payer liaison activities or hesitate to start them. For good account management reasons, perhaps even intensify them.
4. PCTs are highly unlikely to be able to afford all the treatments recommended by NICE, so new drugs will face stiffer market access challenges, even when they are NICE approved. Expect NICE to be tougher in its decision-making.
5. There could be significant change coming in primary and community care. There will be increased community delivery of specialist drugs and even tougher formularies. PCT prescribing budgets will be expected to make savings.
6. There is now a recognition that healthcare has become too fragmented. Integration is a key theme in the document, so expect both vertical and horizontal integration to occur – new accounts needing new account management strategies.
7. There is to be even more joint working with local authorities and even mergers, such as that in Herefordshire and some London boroughs. Most Director of Public Health posts are now joint ones. What do companies know about social services and elected councilors?
8. Perhaps for the first time ever, there is an explicit suggestion that the local NHS should ‘work in partnership with the life science industry’. How will you avail yourself of the major opportunities here?
9. There will need to be more focus on care pathways, with companies prepared to work across the purchaser/provider divide. How many companies are set up for this? Clinical networks in areas like CHD and diabetes are new accounts. NHS-alignment of sales and marketing strategies will be key.
10. Finally, there seems little confidence that the cushion of recent huge funding increases has put the NHS into any stronger position to weather the incoming financial ‘storm’. The only real way to save money is to spend less. That might not only mean fewer staff and but also less medicines use.
Alan Jones is an occasional contributor to Pf. He commentates and presents widely on the ongoing reform within the NHS and its implications for pharma and is a consultant to Wellards. An independent healthcare policy analyst, adviser and NHS trainer, he can be contacted at email@example.com.