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Friday 28th October 2016

Financial Meltdown?

31st March 2006

17032006_pound_sign.jpgEmperor’s new clothes?

Whilst the size of the NHS financial crisis may have crept up on 'those who should know better', it would have come as no surprise to the International Monetary Fund (IMF) who this month issued a warning over Britain's health care bill. In its annual survey of the British economy it said that while the Government's accounts had improved after Mr Brown raised North Sea oil taxes, they had failed to take on board the potential costs of an ageing population. 'The Government may have massively under-estimated future growth of NHS costs ......'

What is the situation?

The NHS is in financial crisis with a predicted deficit which could rise to £800 million pounds- 'a level of indebtedness unprecedented in the history of the health service' said the Week. This is despite a time of record investment.

Patricia Hewitt retorted that this represents only 1% of this year’s budget of £87 billion, and that only "a very small minority" of hospitals and NHS bodies had serious financial problems.

Shortly after the resignation of Sir Nigel Crisp in early March the number of hospitals announcing job losses escalated as hospitals were told to 'get their financial house in order', with a potential loss of nearly 5,000 jobs. The conservatives are predicting that this figure could rise to as high as 15 to 20,000 said the Times.

The Department of Health said that many of the jobs that are going are posts being lost, with vacancies not being filled, rather than compulsory redundancies.

Not only that but senior health officials warned that hospitals in prosperous parts of Britain may have to close to plug ballooning NHS deficits, said the Independent. In a survey of NHS Chief Executives almost two thirds said they've already been forced to close wards to control finances.

Primary Care Trusts, who have formerly urged hospital managers to increase flow of patients, are also under pressure. They are effectively asking some acute Trusts to operate a 'minimum waiting time' policy; for example Eastbourne Downs PCT has told its hospital to delay some operations until patients have been waiting for six months, because of the NHS cash crisis, said the Daily Mail. London hospitals have been warned against 'unexpected overachievement' in reducing waiting times reports The Week.

The Health Secretary promised that nobody would wait more than six months during what she called "short-term steps to get the system back into financial balance." Patricia Hewitt felt that these cuts could be made 'without affecting patient care' said the BBC.

Others remained unconvinced on both job loss and patient care;

Health unions have joined forces to call for crisis talks on the job losses. Dr Beverly Malone, general secretary of the Royal College of Nursing, said inevitably patients will suffer as operations are cancelled or delayed and wards are closed or short of staff.

Job losses are not restricted to the acute trusts;

Hundreds of jobs could be lost at NHS Direct, the Government's flagship telephone and online service, after staff were told that it was about to become the latest arm of the health service to report a deficit with the potential of compulsory redundancies and the loss of hundreds of jobs.

PCTs and Strategic Health Authorities are likely to face a big redundancy bill from the huge restructuring of health authorities and primary care trusts that is taking place.

Meanwhile the NHS was conspicuous by its absence in the Budget; Gordon Brown faced claims from opposition politicians and campaign groups that he had abandoned the health service in the Budget. The Chancellor defended himself saying an extra £6 billion is being invested over the next two years in the NHS, said the Times.

Senior doctors are enraged by the 'vindictive' staged pay rise by the government, saying they have been "singled out" reports the BBC. They will receive a 1% pay rise in April and a further 1.2% increase in November. Health Secretary Patricia Hewitt admitted consultants would be disappointed, but that "financial balance" in the NHS was important.

What has led to the crisis?

That depends who you listen to, as the BBC pointed out in the title of its Documentary 'The Blame Game'.

The government would like to accuse managers for the way they have managed - or not - their finances, pointing the finger at a handful of bad managers. "There's a small number of organisations and a relatively small number of areas where the financial problems are concentrated" the Health Secretary said on BBC Panorama.

She feels that patient care and good financial management go ‘hand in hand', and that part of the problem facing the health service was "clinical resistance" to innovation that can both save money and improve patient care. She also felt that 'deficits hidden for years had been revealed by Labour's reforms'.

Paul Miller, chairman of the British Medical Association's consultants committee, agreed that the problem came down to management, and that "there will be other causes for sure, but the problem is that managers do not consult with doctors enough."

Managers, on the other hand, lay the blame fairly and squarely at the door of the Department of Health - and ultimately Number 10.

They point to a number of factors which have contributed to the current situation; pay deals, the pace of reforms, waiting list targets and a multi-layered array of contributing factors - the move to Independent Treatment Centres (ITCs), PFI schemes, and payment by results.


Higher pay on contracts for consultants, GPs and nursing pay has swallowed about half of this year's cash increase, according to independent studies says the Independent. This, when added to other fixed costs, may leave only between 1 and 1½ to perhaps 2% real increase to pay for improvement in services, says Professor John Appleby, Chief Economist of the Kings Fund.

'The pay reforms may have cost us a bit more than we budgeted for' conceded Patricia Hewitt to the BBC that but they are 'hugely important to getting the improvements we want in the NHS' she said.


The present avalanche of reforms in the health service - 'a wheeze a week' as Alan Maynard, Health Economist, put it to the BBC - is singled out by some as contributing to the present crisis. Patricia Hewitt, on the other hand denied that the raft of current NHS reforms had caused the present financial problems, but rather 'would solve them' .

Waiting list targets:

While the government claims the targets have improved the service for patients, evidence has emerged it has distorted clinical priorities and sucked up too much money says the BBC.

None the less, this can only mean better value for patients, says Hewitt; waiting times have been reduced significantly; Cancer and heart patients are also seen much more quickly - and their treatment has improved.

Nonsense says Bob Dredge, who was programme director for financial reform at the department; in terms of productivity, value for money has been reduced.

Other culprits:

Also in the dock are ITC's and drug spending;

By no means the major cause, but nonetheless the increasing drugs bill has made money even tighter in the NHS than it used to be says the BBC. The Week notes that we pay, on average, over 20% more for drugs than our counterparts in France, Holland or Italy.

ITCs have also been singled out as contributing to the crisis, the NHS Confederation said the push to the private sector has created "volatility". A Unison spokeswoman agreed contracting out treatment to the private sector had a "destabilising" effect as it deprived NHS hospitals of income.

What happens now?

Job losses look set to continue, and reports are pending on the action recommended by the governments 'turn around teams' sent in to the worst performing trusts financially.

The financial spotlight will continue to be directed at managers, with the announcement that the new Healthcare Commission rating system will contain two components for clinical care and management of resources. Trusts rated as poor performers financially would not be able to bid for foundation status.

The chief executive of the NHS Confederation, Dr Gill Morgan said: "It is right that from now on we are completely transparent about the financial situation, because only in this way can we find the solution to the current challenges the NHS faces."

Hewitt concedes that there are some real issues about the financial management framework and the legal framework within which the NHS operates. She asked Sir Michael Lyons and the Audit Commissioner to report on this and make recommendations.

Patricia Hewitt has effectively stacked her reputation and political future on getting the NHS back in surplus in the next 12 months. With the over 65 population due to hit ten million by 2009, the IMF forecasts underline the question of whether public funding will be sufficient to keep the NHS fully operational.

It remains to be seen if the present crisis will prove to be fatal - and for whom.

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