What not to do to stay in budget

Next week the NHS will learn what funding it will have for the next five years. Social care will also get a strong indication as central government funding of local authorities is also set out. The parlous state of NHS finances is evident from the rapid increase in deficits, with nearly 80 per cent of providers overspending by a total of £1.62 billion in the first half of this year.

Staying in budget isn’t hard. The problem is the consequences of doing so. The NHS has been here before of course.

My first job in the NHS in 1981 was in South Birmingham Health Authority. Recovering an overspend was less than sophisticated. My experience in a cold February as the allocated budget for our main hospital wouldn’t stretch to the end of March was to follow a porter round a couple of wards to check the doors were firmly chained shut. The waiting list would grow a bit, but we knew more money would arrive in April and the wards would be re-opened.

So, to stay in budget: just stop doing things; relatively easy in the 1980s, not so easy now of course.

Although headline waiting times performance has slipped over the past year or two, it remains relatively good compared to the longer historical record. However, employing more staff and other resources to do more work (in part to slow the growth in waiting times) has come at a price. Trusts overspent by £1.62 billion in the first quarter of this year – equivalent to around 4.5 per cent of their turnover.

Though understandable, overspending is not sustainable in the long run. So what could trusts have done to stay in budget? The 1980s option of temporarily closing a few wards would be difficult for a number of reasons. First, to save £1.62 billion would have meant closing not just ‘a few wards’ but all hospitals, community, mental health services and ambulance trusts for around eight days. And second, even this would have saved money only if providers also stopped paying for things – like drugs, electricity and staff.

Furthermore, if trusts stop treating patients – £1.62 billion can pay for 607,000 elective inpatients or 1.4 million emergency cases or 14.5 million outpatient attendances – they will then lose income. Less work by providers means less spending by commissioners of course. But providers are still out of pocket unless they cut costs to match their loss of income. Either way, while the benefit of not spending £1.62 billion means staying in budget, the opportunity cost of doing so would be felt by patients and NHS staff.

Alternatively, the NHS could have saved £1.62 billion by not paying NHS consultants for 5 months; or registrars for 10 months; or nurses for 2 months; or senior managers for 26 months…

Or the NHS could have just shut down all chemotherapy, critical care, diagnostic imaging, radiotherapy, renal dialysis and all ambulance services for nearly three months.

No, thought not.

The point about the overspend is that it bought real things – people, drugs, equipment – and had real effects – more work, better health, less pain, fewer deaths. HM Treasury may ask why the NHS couldn’t have produced these things without spending more than it had been given. The NHS can point out that despite an increase in real funding of around only 0.8 per cent per year from 2009 to 2014, the number of elective inpatients has increased by 3.1 per cent, outpatient attendances by 3.0 per cent, and A&E attendances and emergency cases by 1.7 and 1.9 per cent respectively.

And in the longer run too, new ways of delivering care and new technologies will enable the health and social care system to push the production possibility frontier – as it has done in the past – to produce more with less.

But time is pressing. With the vast majority of NHS organisations in deficit and little possibility of change in funding increases to 2020, it is hard to see alternatives to a more 1980s-style approach to managing the finances in the short run.