NHS Funding Gap - can productivity solve the problem?Anita Charlesworth

18 September 2014

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Meeting the Challenge – the NHS approach

Reducing input costs

• National public sector pay policy

• Reducing administrative costs

• Reducing prices of pharmaceuticals

Improving technical efficiency

• Real terms reduction in the unit prices paid for hospital care

• More competitive tender and choice based competition for NHS funded care

Improving allocative efficiency

• Shifting care from hospital to community settings

• Better integration of care

• Demand management

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Real Terms Increase in English NHS Spending

(Total DEL excluding depreciation) 2013/14 prices

2010-11 2011-12 2012-13 2013-14 2014-15 2015-16

-1.00%

-0.50%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

Health Spending

Health Spending

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The 13/14 Out-turn• Provider side in net deficit of £115m

• 65 providers in deficit - £774m (average £12m per provider)

• Most have a small deficit but up to 20 with large, persistent deficits

• 40% of acute providers in deficit

• TDA assess 12 providers need a transaction.

• Surpluses falling, EBITDA falling, CIP delivery falling, reliance on non-recurrent savings building cumulative underlying deficits.

Financial problems spreading from being a few providers with deep-seated, long-term problems to a generic issue for

otherwise successful providers.

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2010/11 2011/12 2012/13 2013/14 2014/15 £85,000

£90,000

£95,000

£100,000

£105,000 Funding pressures on the NHS in England

Funding pressures after for pay restaint

Funding pressures after pay restraint and managing hospital activity for chronic condi-tions

Funding pressures after pay restraint, managing hospital activity for chronic condi-tions, and productivity savings

Funding allocation based on 2010 spending review

Year

Fu

nd

ing

(£b

illi

on

in

201

0/11

pri

ces)

Pay reduc-tion:£5bn

Closing £13 billion Funding Gap: 2010/11 to 2014/15

Source: Roberts, et al. (2012) A decade of austerity? Nuffield Trust

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2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 Annual average growth

-2%

-1%

0%

1%

2%

3%

4%

5%

Productivity Growth Year on Year

Annual Change in English NHS Productivity

Source: Centre for Health Economics, Research Paper 94

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Input and Output GrowthOutput Growth Input Growth

Output GrowthAll NHS

Input GrowthAll NHS

Cost-weighted growth

Quality adjusted CW growth Mixed Indirect

2004/5-5/6 6.53% 7.11% 2004/5-5/6 7.19% 7.10%

2005/6-6/7 5.88% 6.50% 2005/6-6/7 1.92% 1.36%

2006/7-7/8 3.41% 3.66% 2006/7-7/8 3.88% 3.70%

2007/8-8/9 5.34% 5.73% 2007/8-8/9 4.23% 4.24%

2008/9-9/10 3.44% 4.11% 2008/9-9/10 5.43% 5.83%

2009/10-10/11 3.61% 4.57% 2009/10-10/11 1.33% 0.80%

2011/11-11/12 2.38% 3.15% 2011/11-11/12 1.00% 0.75%

Source: Centre for Health Economics, Research Paper 94

Source: Deloitte, Evidence for the 2015/16 tariff efficiency factor (2014)

Case-mix adjusted activity

Provider type

Specialisation

Demographics

Disease prevalence

Case-mix adjusted activity

Emergency admissions

Provider type

Regional variation

Price Inflation

Outcomes

Health & Safety

Patient experience

Scale / Activity

Case-mix, Complexity & Comorbidity

Input Prices

Quality of Service

Total Cost

General model specification

Dependent variable

Multi-dimensional High level cost drivers

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Results of efficiency analysis for Monitor efficiency factor in the tariff

• The models estimate statistically significant frontier shifts, suggesting that the frontier has shifted on average between 1.2% and 1.3% per year during the period 2008/09 to 2012/13.

• The average and median efficiency scores across acute providers are about 90%, which implies that the average provider is 10% less efficient that the most efficient provider in the sector.

• The results suggest that the efficiency gain associated with an average provider becoming as efficient as the 60th percentile provider is 0.9-1.2%.

• The efficiency gain increased to 5-5.6% if an average provider becomes as efficient as the 90th percentile provider.

Source: Deloitte, Evidence for the 2015/16 tariff efficiency factor (2014)

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Random effects SFA

MeanMedianStandard deviation

88%88%5%

91%92%4%

Percentile Difference60-5070-5080-5090-50

1.2%2.4%4.0%5.6%

0.9%2.2%3.7%5.0%

Source: Deloitte, Evidence for the 2015/16 tariff efficiency factor (2014)

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Percentage change from previous year in PCT spending in real terms, by service area, 2011/12 to 2012/13 (2012/13 prices)

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The Geographical Perspective – the London ring and the MidlandsLondon– Barking Havering and Redbridge

£38m*– Barts £38m*– North West London £23m*– Croydon £20m*

Midlands and East– United Lincolnshire £25m*– Leicester £40m*– Mid-Essex £19m*– North Staffs £19m– Peterborough £40m* – Mid Staffs* (dissolved)– Sherwood Forest £22m*– Milton Keynes £17m*

North– Mid Yorks £19m*– North Cumbria £27m*– Morecambe Bay £20m*

(Northumbria deficit relates to PFI)

South– East Sussex £23m

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2014/15 2015/16 2016/17 2018/19

Total affordability challenge

3.1% 6.6% 5.5% 4.7%

Provider Efficiency

2.0% 2.5% 2.0% 2.0%

System Efficiency

1.0% 2.0% 1.0% 1.0%

Remaining Challenge

0.1% 2.1% 2.5% 1.7%

The NHS affordability challenge – planning guidance analysis

If provider efficiency is 2%

combined gap is £2 billion

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The challenges for providers

Income Cost

– Divergence between providers with high proportion of income from tariff and those with non-tariff

– Community and mental health NHS provider income static

– Pincer of BCF and efficiency factor in tariff

– Rising staff cost– 10% plus real terms increase in

drugs spending– CIP under-performance and reliance

on non-recurrent savings– Pension cost in 2015-16 and 2016-

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15

Monitor estimates of productivity potential

Source: Monitor, Closing the NHS funding gap (2013)

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Sensitivity of net debt projections to lower productivity in the health care sector

Source: OBR, Fiscal sustainability report (2014)

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Percentage point increase in the total public health and long-term care spending ratio to GDP, 2010-2060 – EU15Range of estimates across sensitivity analyses1

Source: OECD, Public spending on health and long-term care: a new set of projections (2013)

1Countries are ranked by the increase of expenditures between 2010 and 2060 in the cost-containment scenario.

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9Cost pressure Cost containment

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