NHS efficiency savings 'unsustainable', worrying report warns

National Audit Office research raises concern over NHS's ability to meet £20billion savings target

Is the NHS throwing money down the drain? Or are the savings made to date sustainable? A report from the National Audit Office questions the success of efforts over the past year

The cash savings made by health trusts across England over the past 12 months are ‘unsustainable’ and could threaten NHS efforts to shave £20billion off costs by 2015, a National Audit Office (NAO) report warns.

The document, entitled Progress in Making NHS Efficiency Savings, was published following an investigation commissioned by the House of Commons.

Although the savings made by NHS providers as a percentage of operating costs are increasing, it is not clear what level of savings is sustainable over time

And it voices significant doubt over whether the health service will be able to meet its efficiency target.

It reveals that, predictably, the NHS started by making the easiest savings first, but questions whether this level of savings is sustainable over time.

There is also criticism of the reporting process through which trusts currently provide evidence of financial performance, with the NAO only able to substantiate £3.4billion worth of savings, compared to the Department of Health’s claim of £5.8billion during 2011/12.

Ayas Morse, head of the NAO, said: “The NHS has made a good start in making substantial efficiency savings in the first year of the four-year period when it needs to achieve savings of up to £20billion. To build on these savings and to keep pace with the growing demand for healthcare, it will need to change the way health services are provided and do so more quickly.”

Most of the cuts to date have been achieved through the pay freeze for public sector staff and reductions in the prices primary care trusts pay for healthcare services. NHS bodies across England have also streamlined back office functions.

In total, 49% of the reported savings - £2.9billion – was delivered through the commissioning of acute services, 8% below the forecast. Other areas such as primary care, dental services, pharmaceutical services and ophthalmics achieved significantly more savings than had been predicted. There was also regional variation, with NHS London strategic health authority achieving 110% of its forecasted savings, while NHS East Midlands reported just 77% of its intended figure.

Our review of the returns from primary care trusts indicated that savings of £261.2m reported as arising from changes in care settings did not take into account associated recurrent costs of £112.3m

The NAO report states: “Although the savings made by NHS providers as a percentage of operating costs are increasing, it is not clear what level of savings is sustainable over time.”

The research suggests that £520m of the reported savings for 2011/12 were one-off in nature, with the NHS having to find replacement savings in future years.

The document states: “The need for the NHS to make up to £20billion of savings is based on the savings being recurrent. Drawing on our survey data, we estimate that about 91% of the savings reported by primary care trusts were recurrent and about 9% were non-recurrent."

And, according to the research, trusts have been slow to consider the transformation of services, a move seen by many as offering some of the greatest opportunities for savings.

“Reducing demand and redesigning care pathways to treat patients in the most appropriate setting are key ways of generating savings,” it states.

This approach is unsustainable, with the future risk that pursuing this approach in isolation will impact on quality of care and, for some organisations, future viability

It also calls for improvements to the way trusts monitor outcomes and patient satisfaction levels to determine whether the changes are negatively impacting on performance, and is appealing to NHS bodies to disseminate best practice in order to repeat some of the most-effective measures elsewhere across the country.

In addition, there is criticism that not enough is known about how much money has so far been spent by trusts in order to achieve the efficiencies.

The report states: “44% of primary care trust clusters reported through our survey that costs were not consistently deducted from reported savings. In addition, the small sample of savings we examined often did not take account of related costs. For example, one primary care trust reported savings of £2.2m from reduced running costs, but did not take into account associated one-off redundancy payments of £1.1m.

"Our review of the returns from primary care trusts indicated that savings of £261.2m reported as arising from changes in care settings did not take into account associated recurrent costs of £112.3m."

To address these issues, the report makes the following recommendations:

  • The DH should take a more active interest in demand management and develop ways of gaining routine assurance that patients’ access to healthcare is not being inappropriately restricted
  • The DH and the NHS Commissioning Board should work with the NHS to reduce barriers to transforming services and to evaluate the impact of trasformational initiatives as they are implemented to generate evidence about what works locally and on a larger scale to encourage the NHS to apply good practice more widely
  • In developing future mechanisms for paying for healthcare, the DH, Monitor and the NHS Commissioning Board should consider how these mechanisms can be used to drive service transformation and care that is integrated around the patient
  • The DH should develop better ways of monitoring progress on service transformation
  • The DH should provide better guidance to the NHS on how to measure and report efficiency savings so that the total savings reported are more strongly supported by robust data
  • The DH should improve transparency by making clear any caveats to data quality when it reports efficiency savings. The report claims the DH findings did not always take into account costs incurred in generating savings

Reducing demand and redesigning care pathways to treat patients in the most appropriate setting are key ways of generating savings

Despite the concerns, the trusts interviewed as part of the research were confident they could achieve most of their planned savings before 2015, with major transformational change expected over the next 24 months. A survey by the NHS Confederation revealed 31% of primary care organisations had already expanded community-based care.

But the report says that this approach could be threatened and early efforts scuppered once strategic health authorities are abolished in the next few months and trusts become more autonomous.

“Our work for this report was carried out partway through the transition and some degree of uncertainty remains, particularly in relation to the roles currently performed by strategic health authorities,” it states. “It is not clear who will be responsible for the oversight of efficiency savings at a local level once strategic health authorities have been abolished. Strategic health authorities also provide direction and take decisions that are designed to benefit the local health economy as a whole, rather than any individual NHS body. It is not clear who will carry out these important functions in the reformed NHS.”

The findings have come as no surprise to industry experts. Matthew Harker, director of Capita’s health consulting business, told BBH : “The report reinforces what we’ve also found in our work with commissioners and providers over the last 2-3 years since the inception of Quality Innovation Productivity and Prevention (QIPP).

“The centrally-driven approach, primarily through price deflation, has worked in terms of driving pure cost savings. However, this is unsustainable, with the future risk that pursuing this approach in isolation will impact on quality of care and, for some organisations, future viability.

“Local initiatives have focused on tactical savings such as trimming patients’ length of stay, reducing follow-up rates in outpatients, and raising the thresholds for intervention. However, to drive up the quality of care while improving efficiency also requires fundamental focus on the way in which services are provided, rather than purely streamlining them.

“Service transformation has not yet been realised at scale in the NHS. In addition it has not been systematically implemented and, where it has been delivered, takes time to see the benefits of improvements in quality and efficiency of care.”

What emerges from the NAO report is that the low-hanging fruit - the easiest savings - have already been harvested. The NHS will have to search deeper and wider for future efficiency savings

Chris Doyle, marketing manager for healthcare at supply chain standards organisation, GS1 UK, added: “The NHS efficiency saving of £5.8billion in 2011-12 is clearly positive news for the organisation and for us as taxpayers, but are the savings sustainable? According to the National Audit Office report the reality is that the NHS will need to find replacement savings in future years.”

Difficult decisions over future wage bills will also need to be made, according to Dean Royles, director of NHS Employers. He said: “The largest part of NHS spending is its pay bill and this makes difficult decisions about pay in the future unavoidable. The NAO is clear that these savings need to be sustained and the hard truth is that an increase in staff pay rates next year would make the required efficiency savings all the more difficult for years to come, not just in that year. I want to ensure that we minimise any detrimental impact on job security and patient services. Every 1% increase in pay equates to about half a billion pounds.

“We know this is not easy for staff and I wish the financial circumstances were different, but we have to ensure we have a sustainable pay bill in the future. We know we are just at the start of a long, financially-challenging journey.”

And Margaret Hodge MP, chairman of the Commons Committee of Public Accounts, added: “What emerges from the NAO report is that the low-hanging fruit - the easiest savings - have already been harvested. The NHS will have to search deeper and wider for future efficiency savings. Fundamental service transformation is vital to unlocking savings, but progress to date is underwhelming.”

The Department of Health says it will consider the recommendations outlined in the report, adding that it expects around 40% of future savings will come from nationally-driven changes such as pay restraint and reductions in central budgets for education and training. Another 40% will come from ‘provider-driven changes’, as NHS trusts and foundation trusts become more operationally efficient; while 20% will be generated by the transformation of services, in particular a shift to community-based delivery rather than acute hospital care.

To read the NAO report, click here.

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