Economic Issues in the NHS John Appleby Chief Economist King’s Fund
What issues? • Spending • Choice • Efficiency, productivity, competition and incentives
1: Spending Current spend Realistic spending range? £0 £1,000 bn Full range of spending options
How much should we spend? Benefit Total resources available C Fast cars (£z-y) Health care (£y-x) B Education (£x) A Cost x y z
…and now with real data.. Benefit Total resources available ? Cost
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)
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?
2: 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
Choice and trade offs • Early results from LPCP • Conjoint analysis/Discrete choice experiment • Values trade offs patients willing to make in order to take up offer of quicker treatment
Trade offs • Travel time • Transport arrangements • Reputation • Follow up care
Efficiency, productivity, competition, incentives… • Target to reduce waiting times... • ...Patient choice... • ...Financial flows…. => Fixed price 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
Productivity • Policy problem: NHS productivity is falling • …based on traditional productivity measures
Why has productivity fallen? Extra funding… • Absorbed by higher costs (rather than higher outputs). • Invested in services and activities which may take some years to be reflected in increased outputs. • Increasingly channelled into activities not captured by the productivity measure. • Used to increase the (unmeasured) quality rather than the (measured) volume of outputs.