Economic Issues in the NHS John Appleby Chief Economist King’s Fund

What issues? Spending Choice Efficiency, productivity, competition and incentives

1: Spending £0£1,000 bn Full range of spending options Realistic spending range? Current spend

How much should we spend? xy 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..aspiration

Will we get there?

Spend what we can afford?

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….

...Brown accepts

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...

Health  health 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 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

Falling productivity

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.