Comment / Getting Productive

No-one is under any illusions. The years of plenty are about to come to an end as we return to more modest, and more sustainable, levels of growth. The government lived up to its promise to deliver 7.4% real terms growth for health for the five years from 2002. And even over a longer period – from 1996/97 to this year – real terms annual increases averaged 6.2%.

We don’t yet know what the figure will be for the next three years – a point underlined by the King’s Fund chief economist, John Appleby (see page 6), despite media confidence that there will be no surprises. But a real terms increase of about 3% – in line with the health service’s longer term average – is what the service expects. 

Even once we know the overall settlement it will be a while before we know what this will mean for local services. This will particularly be the case in the devolved nations. Different priorities in those countries, both within the health portfolio and across the wider spending departments, can have a major impact on the funds that are allocated locally to health bodies.

One thing is certain: the next three years will be immensely challenging – something we in finance perhaps understand better than anyone. Delivering demanding targets, such as the 18-week wait, while maintaining the new financial balance with more modest growth will place huge efficiency demands on the NHS. We know there will be more performance challenges too. Prime minister Gordon Brown told the Labour conference of the need to prioritise infection control, recruit more matrons and expand cancer screening. Clearly the drive for improvement will continue.

We are often criticised for not improving productivity. We all know we can improve, but some of the criticisms are simply unfair. Measuring productivity in terms of hospital activity is never going to be very revealing, especially when the policy context is to treat more patients in the community.

The King’s Fund’s Wanless update pointed out that unit costs had increased for all hospital services between 2002/03 and 2007/08 and that annual unit cost reductions of 0.75 to 1%, assumptions made by Sir Derek in his original review, had simply not been met.

The significant pay rises for staff – which were both political priorities and publicly popular at the time – were bound to have this effect. As the new contracts were implemented in advance of changes in practice or service delivery, short term productivity gains were always going to be difficult to achieve.

But we do have good foundations to build on. There is growing interest in the use of lean management techniques to eliminate waste. And patient level costing – an initiative where finance has a major role to play (see The virtue of patients, page 15) – should provide the right level of information for organisations to really start understanding what drives their business, improving both service quality and value for money.

Whatever the settlement this month, we face a challenging three years ahead. And finance departments across the UK will have a pivotal part to play.