Making money work in the health and care system

by Alan Milburn

01 June 2018


A major overhaul of the current NHS finance system is needed if the government is to get the maximum value out of any new investment in the health service.

As a landmark 70th birthday fast approaches, the NHS is widely expected to receive a welcome and much-needed present. The prime minister has signalled the injection of more long-term resources into the health service and, hopefully, the NHS and the wider care system.

The NHS has reached an inflection point. Demand for services is outweighing the supply of resources. While hospital admissions have increased by one third over the past 10 years, the amount of money entering into the system has not kept up. NHS funding has been rising at less than half the rate of the 4% historic average. The arguments are now raging in Whitehall about how much the NHS needs to be sustainable. History seems like a good guide – 4% is surely the minimum needed.

Here, however, I have a health warning, and one that I make having worked closely over nine months with a team from PwC, led by healthcare partner David Morris, in collaboration with the HFMA, to research how financial flows could be redesigned to find a better way to make money work in the health and care system.

Having drawn on views and expertise from a range of experts – from academics to finance directors and non-executive directors – and taken into account previous research, I believe more resources will fail to deliver results unless there are major reforms to the current NHS financial system.

Over the course of this research, we found too much of the money invested into the system and the way it flows currently is focused on increasing activity in hospitals, rather than improving outcomes in the community. It tends to be short term, not long term in its focus, and unfortunately all too often it misses the point about prioritising prevention rather than just treatment. 

These points of view do not just reflect my own perspective. To get a sense of how the current system is viewed and the appetite for changing it, PwC and the HFMA surveyed over 200 individuals working in finance roles in the NHS.

  • 76% felt that the current funding structures in the NHS were not fit for purpose.
  • 78% thought that there should be a single budget for each local health, social care and public health economy.
  • 77% believed outcomes would be improved through greater certainty of funding levels over a longer timeframe.

It is safe to conclude that those in charge of NHS finances believe that today’s structures are past their sell-by date.

So, increasing the volume of cash is only one change the NHS needs. The second is visibility over resourcing. The NHS, both nationally and locally, needs long-term line of sight – five to 10 years – over resources, so that it can plan with certainty to transform services to meet future demographic and disease challenges.

It will take time to change services so that they are less fragmented and more integrated, less dependent on hospital care and more community-based, less focused purely on treatment and more on prevention. The government can gift it time as well as money.

Thirdly, reforms must accompany resources. Structural reforms since 2010 have led to unprecedented confusion and uncertainty. The reforms were intended to introduce more competition, but the thrust of the Five-year forward view is about encouraging greater collaboration, not least between health and social care.

Today the NHS is in an organisational no-man’s land. In particular, there is a misalignment between the ambition of creating integrated, place-based and outcome-led care and the operation of the current financial system. Money talks in the NHS. Not just the volume of money, but how it is used, deployed and how it moves around the system. I know that from my experience as health secretary in the Blair government. 

When we put record resources into the NHS, at first hospital activity levels stalled and waiting times continued to rise. One of the key things that changed that was the introduction of incentives for hospitals to increase activity and reduce waiting. The more they did, the more resources they got. That change led to unprecedented reductions in the times patients had to wait for an operation. 

But today, although reducing waiting times remains important, the biggest priority for the NHS is to tackle chronic diseases like diabetes and improve population health outcomes. That needs a different set of financial incentives.  

The current financial system is caught in a time warp and needs to catch up. Without reform there is a risk that that the government simply won’t get the most bang for the buck out of the new resources it intends to invest in the NHS. That would mean too many of the extra resources would be wasted.

What is more, if left unreformed, the financial system will be a stumbling block to the service transformation that is so desperately needed. To make sure that the extra resources are put to the best use, a number of reforms are needed.

Health and social care budgets need to be brought together at a local level. How providers get paid should be changed to reward improvements in health outcomes rather than increases in the number of people treated – so helping the drive towards prevention rather than activity. 

Channelling NHS resources through local systems rather than single institutions would speed care integration. And banning capital to revenue transfers – which have robbed the NHS of billions of desperately needed infrastructure spending in recent years – would provide more investment in out-of-hospital care. These changes would put extra resources to work for the benefit of patients. 

The NHS will not be sustainable as a universal service providing care according to need without change. The promise of more government investment is welcome, but it must be accompanied by reforms. There is a huge opportunity to better optimise resources, better empower patients and better improve health outcomes. Change is always hard in the NHS but there is a big prize on offer – not just to sustain the system, but to transform it.

Download Making money work in the health and care system here.

A shorter version of this blog first appeared in The Times. This extended blog was exclusively written for HFMA members.