Economic Issues in the NHS

John Appleby

Chief Economist

King’s Fund

What issues?

• Spending

• Waiting lists

• Choice

• Efficiency, competition and incentives

Determining NHS spending

£0 £1,000 bn

Full range of spending options

Realistic spending range?Current spend

How much should we spend?

x y

Health care (£y-x)

Education (£x)

Total resources available

Cost

Benefit

A

B

z

Fast cars (£z-y)C

…and now with real data..

Total resources available

Cost

Benefit

?

Pledge/promise…er..aspirationTotal Health care spending as % of GDP $PPP

0.00

2.00

4.00

6.00

8.00

10.00

12.00

Pe

r c

en

t

Austria

Belgium

Denmark

Finland

France

Germany

Greece

Ireland

Italy

Luxembourg

Netherlands

Portugal

Spain

Sweden

U.K.

TOT EU

Will we get there?Total health care spending as a proportion of GDP:

actual and projected

0

1

2

3

4

5

6

7

8

9

10

11

12

19

63

19

65

19

67

19

69

19

71

19

73

19

75

19

77

19

79

19

81

19

83

19

85

19

87

19

89

19

91

19

93

19

95

19

97

19

99

20

01

20

03

20

05

Pe

r c

en

t G

DP

EU (excluding UK) projections

EU (excluding UK) spend

UK spend

UK projections

Projected EU spend

Planned UK spend

Projected UK spend

Spend what we can afford?

Projected health care spending per head and GDP per head: EU countries: 2001

y = 0.0841x0.9949

R2 = 0.7618

1000

1500

2000

2500

3000

3500

12000 17000 22000 27000 32000 37000 42000

GDP per capita (US$PPP)

To

tal h

ea

lth

sp

en

din

g p

er

ca

pit

a

(US

$P

PP

)

UK

EU average: $1.834

Wanless Review of NHS funding

• Defined a ‘vision’ of the NHS in 2022• Costed vision (ie, reductions in waiting times,

increased quality, better infrastructure etc)• Crude sensitivity analysis produced three possible

spending pathway scenarios• Cost by 2022 (today’s prices)

– ‘Fully engaged’: £154 bn (10.5% GDP)– ‘Solid progress’: £161 bn (11.1% GDP)– ‘Slow uptake’: £184 bn (12.5% GDP)

Wanless recommends….

Total UK health care spending

4

5

6

7

8

9

10

11

12

13

1977/8 1982/3 1987/8 1992/3 1997/8 2002/3 2007/8 2012/13 2017/18 2022/23

Per

cent

GDP

Historic

Slow uptake

Solid progress

Fully engaged

...Brown accepts

Percentage change in UK NHS real and volume spending

0

1

2

3

4

5

6

7

8

9

10

83-84

84-85

85-86

86-87

87-88

88-89

89-90

90-91

91-92

92-93

93-94

94-95

95-96

96-97

97-98

98-99

99-00

00-01

01-02

02-03

03-04

04-05

05-06

06-07

07-08

Re

al

ch

an

ge

: P

er

ce

nt

0

1

2

3

4

5

6

7

8

9

10

Vo

lum

e c

ha

ng

e:

Pe

rce

nt

Thatcher Thatcher/Major Major Blair

2.1% pa 2.6% pa4.1% pa

Blair

4.8% pa 7.4% pa

Issues for Wanless II

• Cause and effect• Health health care spending• Improving health is the objective• Better sensitivity analysis• Evidence base for assumptions• More of the same?• Patient/public satisfaction

Cause and effect

• Wanless assumed relationships between variables that were:

– Fixed (constant over time)– Linear (A determines B)– Bivariate (only A determines B)

• But, relationships change over time, have ‘feedback’ loops and tend to be multivariate: eg

• Technological advance influences supply and demand• Reduced waiting times creates more demand...

Healthhealth care spending

• Differences in assumptions about population’s future health generates the three ‘scenarios.

• Level of health assumed rather than generated by Wanless

• Increased spending > improved health: not part of Wanless’ approach

• Health influences demand (and hence spending levels) but is also a desired outcome of higher

spending

Improving health is the objective

• Is the ‘vision’ for the NHS in 2022 the best (eg most effective and cost effective) way to achieve actual goal: ie improving population health?

Better sensitivity analysis

• Most important cost drivers: delivering high quality services and meeting rising expectations (common to all three scenarios).

• But how sensitive are predictions about changing quality and expectations?

Evidence base for assumptions

• Need for systematic review of the evidence supporting Wanless Review recommendations

More of the same?

• Wanless had a tendency to assume the NHS in 2022 would look similar to the NHS in 2002 - but bigger.

• Different structures, different ways of working?

Patient/public satisfaction

• What are the determinants of satisfaction?• How do these change over time?• Patient/public involvement in determining spending

levels?

Why do we wait?

• Not enough resources?• Demand > supply?• Poor management?• Private practice?• Clinical variations?• No prices?

Wait for Grommet insertion operation: Variation within and between trusts

0

10

20

30

40

50

60

Trust I D K N C L G M E F

Wee

ks

Targets, Targets, Targets

• Numbers

• Maximum waiting time

• Average waiting time

• Variations in waiting list/maximum/average time

• …a fair waiting list process?

Reduce total waiting

NHS Plan targets: Maintain 100,000 reduction in total waiting lists

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1997MARCH

1997SEPT

1998MARCH

1998SEPT

1999MARCH

1999SEPT

2000MARCH

2000SEPT

2001MARCH

2001SEPT

2002MARCH

2002SEPT

2003MARCH

2003SEPT

2004MARCH

2004SEPT

2005MARCH

Nu

mb

ers

wai

ting

Maintain target: 100,000 less than March 1997 list

How was it achieved?

1997 manifesto pledge: reducing waiting lists by 100,000 - local achievement

-60

-40

-20

0

20

40

60

80

Health authorities

Per

cent

age

chan

ge in

wai

ting

lists

: M

arch

199

7 - M

arch

200

42% of authorities reduced lists - but by less than the national average target of 9.5%

18% of authorities increased numbers waiting

40% of authorities reduced lists by more than the national average target of 9.5%

Reduce maximum wait

NHS Plan targets: By 2005, no one to wait longer than six months for admission to hospital

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

1997MARCH

1997SEPT

1998MARCH

1998SEPT

1999MARCH

1999SEPT

2000MARCH

2000SEPT

2001MARCH

2001SEPT

2002MARCH

2002SEPT

2003MARCH

2003SEPT

2004MARCH

2004SEPT

2005MARCH

Patie

nts

wai

ting

mor

e th

an s

ix m

onth

s

Reduce average wait

Mean and median waiting times: Inpatients+Day cases: England

0

1

2

3

4

5

6

7

8

9

10

1988 1988 1989 1989 1990 1990 1991 1991 1992 1992 1993 1993 1994 1994 1995 1995 1996 1996 1997 1997 1998 1998 1999 1999 2000 2000 2001

Mon

ths

Mean

Median

Reduce variations in waiting

West SurreyWest Sussex

Redbridge & Waltham ForestEast SurreyEast Sussex

East KentNorth Cheshire

Bexley , Greenwich & BromleyWest Kent

AvonLambeth, Southwark & Lewisham

Barnet, Enfield & HaringeyCroydon

Cornwall & Isles of ScillySouth and West Devon

SuffolkBarking & Havering

BedfordshireNorth Essex

East Riding & HullSouth Cheshire

North & East DevonWiltshire

Brent & HarrowHerefordshireHertfordshire

StockportSalford & TraffordNorthamptonshire

Kingston & RichmondBuckinghamshire

LeedsWorcestershire

I of W, Portsmouth & SE HampshireNorth Cumbria

OxfordshireWakefieldSheffield

Southampton & SW HampshireBerkshire

South StaffordshireMerton, Sutton & Wandsworth

South HumberHillingdonSomerset

Morecambe BaySouth Essex

NorfolkNorth & M id Hampshire

ManchesterLincolnshire

North DerbyshireCambridgeshire

South LancashireEaling, Hammersmith & Hounslow

East LancashireSefton

TeesEast London & City

Wigan & BoltonNorth Yorkshire

North NottinghamshireLiverpool

Bury & RochdaleSouthern Derbyshire

SolihullCounty Durham & Darlington

ShropshireNottinghamSunderland

WirralBradford

WarwickshireCamden & IslingtonNorth Staffordshire

LeicestershireCoventry

St Helens & KnowsleyNewcastle & North Tyneside

North West LancashireNorthumberland

Gateshead & South TynesideWolverhampton

West PennineKensington, Chelsea & Westminster

GloucestershireBirmingham

DudleyCalderdale & Kirklees

BarnsleyWalsall

RotherhamDoncasterSandwell

Dorset

ENGLAND

0% 20% 40% 60% 80% 100%

Percentage waiting less than 6 months

Percentage of patients w aiting less than 6 months for an inpatient admission, 2001/02 (Q2)

5 (i) SIX MONTH INPATIENT WAITS

...a fair process?

• Clinical need (urgent, soon…er…never?)• Scoring system?

Choice

• Economics: study of behaviour of people with choices

• Sociology: study of behaviour of people with none

Choice: current policy

• New policy objective for the NHS?• National cardiac care choice scheme• London patients choice project• How did we get here?• Implications for financial flows

Choice in the NHS: some issues

• Choice vs other system goals (eg equity, efficiency)• Choice of what?• Limits to choice?• Information (eg asymmetry and knowledge)• Relationship between principle and agent

Efficiency, competition, incentives

• Target to reduce waiting times...• ...Patient choice...• ...Financial flows….

= Fixed price contract market!?

Fixed (HRG) price market

• Implementation?– What tariff?– What period?

– Rules of engagement?

Fixed (HRG) price market

• Benefits– Incentive to increase volume– Reduce private sector prices– Cut costs/improve efficiency

Fixed (HRG) price market

• Costs– Quality/cost trade off– Exit from market– Mergers– Cross subsidisation within hospitals– Unavoidable costs/inefficiency– Regulation/monitoring/transaction costs