The £70 million hole in Welsh health spending

Ceri Phillips questions how far health authorities across Wales are keeping control of their budgets

The Wales Audit Office has recently fuelled the debate on the financial problems facing NHS Wales with its estimate of a £70 million deficit. This came close on the heels of a claim by the chief executive of NHS Wales, David Sissling, who suggested that the health boards would meet their financial targets and break even during 2012-13. In a subsequent statement he agreed that the £70 million estimate from the audit office appeared reasonable and highlighted the unforeseen demands that had been placed on NHS Wales by increasing levels of activity and factors such as an unexpected increase in the number of older people moving to the area.

Sissling also announced that a contingency fund of £50m would be made available to the health boards to deal with the financial pressures they were encountering. So is the one part of the UK under Labour control really struggling to keep its finances under control, as some are suggesting?

National conference: Cardiff, 13 January 2013

Making sense of the NHS in Wales

Professor Ceri Phillips will be speaking at this important IWA conference on the future of NHS Wales. Other keynote speakers include Professor Marcus Longley, of the Institute of Health and Social Care, University of Glamorgan; Dr Stephen Monaghan, of Public Health Wales; Helen Birtwhistle,Directir, Welsh NHS Confereation;Carol Lanyman Davies, Director, Wales Board of Community Health Councils; Tina Donnelly Director, Wales College of Nursing in Wales; and Rachel Podalek, of the General Medical CouncilFor more information and to book download event flyer here

Interestingly, what has not been highlighted by the media is that the Audit Office also found most NHS bodies in Wales in a better financial position than they were at the same time in 2011-12. At the end of financial year 2011-12, the Welsh Government allowed health boards that were not going to meet their break-even targets to carry forward their deficits with the proviso that they would break even within 2012-13. Health Minister Lesley Griffiths went on to emphasise that such “remedies” would not be tolerated in future years. Hence in April 2012 the health board finance directors embarked on their annual journeys towards the financial break-even targets, against the background of ever-increasing demand for healthcare services and a flat cash allocation of resources from the National Assembly’s coffers.

Unlike the Department of Health in London, the Welsh Government did not allow for any increase in funds for the health service – a regular feature of opposition taunts during debates in the Senedd. So any additional cost pressures would have to be subsumed within existing resource envelopes.

Health boards have consistently argued that the degree of manoeuvrability in budget management is severely constrained, given the proportion that relates to wages and salaries. While sterling efforts have been made to limit the use of locum posts, bank and agency nurses over the recent past, the ‘slack’ within the system which enabled the cuts to be made without compromising service provision has now been virtually removed.

All health boards are also currently embarking on an engagement and consultative programme relating to potential service reconfiguration. This has been badged on the agenda of quality improvement, but at the same time has provided ideal ammunition for those who argue that it is simply an exercise in cutting services.

Remembering that the resident population in Wales is just over 3 million, there is undoubtedly excess capacity for certain procedures – which on grounds of quality and safety requires a realignment of services. This, coupled with the strategic direction of health policy within Wales to reduce dependence on the hospital sector and switch the focus towards management of patients within primary and community care, should result in a reallocation of resources. This would most likely reduce pressure on the limited financial resources available to NHS Wales in the longer term.

But despite a series of reports from expert bodies, such as the Bevan Commission, that have questioned the sustainability of the current service configuration in Wales, there is serious concern that the energies and efforts devoted to the annual budget management journeys have deflected attention from the more pressing issues that confront the NHS in Wales.

The emphasis on quality and the health benefits that can emerge – as evidenced by the work programmes of Saving 1000 Lives+ – must remain as the main strategic priority of health policy, while grappling with the inequalities that exist by ensuring that the best facilities and services are available in those areas and communities that need them most.

This is all perfectly illustrated by the creation of a purpose-built health park in Merthyr Tydfil, which also warrants a higher priority status than the energies and efforts expounded on eradicating what amounts to, at worst, 2 per cent of the expenditure on the health and social care system. Indeed, it is highly probable that by ensuring quality is paramount and inequalities are reduced, the financial pressures facing the health bodies in Wales (which the media constantly reminds them of) will no longer be visible. The Wales Audit Office will then portray a very different picture of the financial health of the NHS in Wales.

Ceri Phillips is Professor of Health Economics at Swansea University.

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