Kicking the health funding can down the road

Malcolm Prowle argues that NHS Wales cannot continue indefinitely to be free at the point of use

The on-going row over the report into NHS Wales by Marcus Longley, brings its future once more into the public spotlight. Although the report covers many important issues, one critical question is not considered. This is whether in the long term the NHS in Wales can continue in its present form of being free at the point of use and funded from the proceeds of taxation. This may seem a heretical question to ask, but asking it must be done.

When the NHS was created in 1948 it was the jewel in the crown of the post-War Labour Government. Since that time many people, especially in Wales, have continued to see it as a beacon of a civilised society, where health care is free at the point of consumption and where access to health care is largely based on clinical need and not ability to pay. Thus the NHS contrasts very positively with other healthcare systems, most notably in the USA where 15 per cent of the population are uninsured and a further 35 per cent are underinsured or fear losing their health insurance. The issues facing the future of ‘Obamacare’ in the USA suggest that these problems remain unresolved.

However, the success story of the NHS often blinds us from considering whether it can continue unchanged into the future, particularly with regard to it being a public service funded almost entirely from the proceeds of taxation. Aneurin Bevan, is often quoted as stating his expectation that once the NHS was founded and people’s health status improved, spending on it would fall.

In fact, as we know, the reverse has been the case. NHS spending has grown enormously over the past 60 years. While we may look back on Bevan’s comments as naïve, we must remember that he couldn’t have anticipated the impact of artificial joint replacements, organ transplants, high technology diagnostic equipment, highly complex and expensive cancer drugs, genetic screening and therapies, nor the impact of people adopting very unhealthy lifestyles and risk behaviours.

In 2002, Sir Derek Wanless prepared a number of reports which considered whether the NHS could continue to be provided from the proceeds general taxation. One was prepared for the Welsh Government on the future of health and social care in Wales. Wanless outlined three main future scenarios for the NHS, involving different levels of funding growth. The most ambitious scenario involving the lowest (but still high) level of growth in NHS funding required major improvements in NHS productivity and a major change in population lifestyles and an acceptance that people should take increased responsibility for their own health. Wanless subsequently concluded that the NHS should continue to be funded from general taxation albeit at higher levels. Unfortunately over the decade since Wanless, NHS productivity has declined and only limited progress has been made in relation to population attitudes to their own health. Many would argue that we have failed to achieve the least ambitious Wanless scenario let alone the most ambitious.

Let’s fast forward to 2012 and see where we are now. At least four factors are in play:

  1. The demands for NHS services are estimated to grow at 4-5 per cent a year as a consequence of influences such as an ageing population and developments in medical science.
  2. Many people in Wales still have extremely unhealthy lifestyles, which they seem unwilling to change. These will have major long-term implications for the NHS.
  3. The UK economy, which generates the tax revenues to pay for public services like the NHS, is in the doldrums with little likelihood of there being significant economic growth in the near future. Consequently, scope for additional funding through economic growth is virtually nil.
  4. Like the rest of the UK, the NHS in Wales is facing ongoing cuts in public spending for many years to come.

Taking these together, the Wales Audit Office estimates that NHS Wales faces a funding gap of between £252 and £445 million by 2013-14 – that is, the difference between what it would need to stand still, and what it will actually receive.

Moreover, it is important to emphasise that the current situation will not be resolved next year or the year after. All the indicators are that public services in Wales and the rest of the UK will be facing financial austerity for many years to come. Recently the UK Cabinet Secretary, Sir Jeremy Heywood, was quoted as saying that the cuts in public expenditure will last for ten years. Wales cannot be immune from this situation, however much we might like to be.

In the light of these circumstances and the early lessons from Bevan and Wanless, surely we have to ask the almost heretical question as to whether the NHS in Wales can continue to be free at the point of consumption and funded almost solely from general taxation? So what are the alternatives?

Two approaches to bridging the funding gap in NHS Wales are usually put forward:

  • Improved Efficiency This is a favourite remedy of politicians who seem to believe it is easy to do and a panacea for everything. But if it was that easy it would have already have been achieved. In reality the NHS in Wales has made some efficiency savings for many years. However, these have been delivered during a period of financial growth where the efficiency savings could be seen as a self-generated top-up to the increased level of funding given to the NHS. The level of efficiency savings that would now need to be generated in the Welsh NHS to close the current funding gap is unachievable. If politicians say it can be done you shouldn’t believe them. Think of the oil tanker analogy. The NHS is an organisation which over the last 60 years has got used to receiving large (and, in some years, very large) amounts of additional funding each year. It is now faced with sharp reductions in funding – an unprecedented situation.

Can the NHS in Wales turn itself into a lean mean machine delivering high quality (and sometimes not so high quality) health care at a vastly reduced cost? It seems to me that the changes that would be needed to achieve would be politically unacceptable. Moreover, in Wales, the challenges are doubly difficult because policies such as competition are not even to be considered, on ideological grounds.

  • Service Reconfiguration The Longley Report which has caused such a stir this week, is largely about the need for reconfiguration of health services in Wales. The report makes a strong case for reconfiguration in a number of clinical areas in order to meet the vast challenges of the future. However, whatever its merits, the report is not claiming that reconfiguration will deal with the financial challenges facing NHS Wales. It actually states that the evidence on the costs of hospital re-configuration is inconclusive. Sometimes it saves money, sometimes it is cost neutral, and sometimes it increases cost. It is hardly a solution to the financial hole the NHS Wales finds itself in.

If the above options are unlikely to solve the financial problems what other alternatives are available. There seem to be two main contenders:

  • User Charges The NHS already levies a number of different charges which are small in scope and revenue, and in Wales the range and scope of these charges are less than in England. One policy option would be to increase the range and scale of user charges in the NHS in order to raise more revenue. Even in the socialist havens of Scandinavia there are a number of patient related charges which are accepted by the population as being fair and which raise revenue. The health policy group, “Doctors for Reform” have argued that many NHS patients are already routinely seeking paid options to top-up their NHS entitlement, in order to access new kinds of care, faster access and higher quality. Thus the service can no longer be regarded as free at the point of consumption for everyone. They subsequently argue that the incidence of such co-payments is so haphazard and inequitable to the poor that it would be better to address the issue head on and introduce a more uniform and fairer approach to top-up payments for all patients.
  • Health insurance A yet more radical option would be to restructure NHS finance completely and move towards some form of a health insurance model where people (or the government in some cases) would pay monthly insurance premiums. In line with the principles of insurance, premiums could be linked to risk, so that people adopting unhealthy lifestyles would pay more, thus providing a financial disincentive to such behaviours. Whenever the issue of health insurance models are discussed many people throw up their hands in horror and talk about the USA and how bad its health system is, which of course is true. However, this ignores the fact that many European countries operate perfectly good health insurance models for funding health services. There are many different models available which take account of matters such as health care for the poor.

At the end of the day politicians and health professionals are likely to throw up their hands in horror at these alternatives and say something like “over our dead body”. The problem is that if something isn’t done soon and we fail to face up to the issues, then some way into the future, perhaps in as little as five or six year’s time, lack of health service funding will result in unacceptable consequences.

Can the NHS continue indefinitely to be free at the point of consumption and funded from the proceeds of taxation? I don’t think so?

Malcolm Prowle, who lives in Wales, is professor of business performance at Nottingham Business School and a visiting professor at the Open University Business School.

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