Health spending

Interesting report from Audit Scotland today giving a financial overview of NHS Scotland. The NHS in Scotland spent £10.9bn last year, one third of the total Scottish budget and employs 160,000 people.

Whilst the NHS has a degree of protection from next year's spending cuts, this report confirms our analysis that the NHS is not exempt from cuts. Funding is at best at a standstill while demand and cost pressures continue to rise. As a consequence services will have to be cut or the NHS will have to exceed its so called 'efficiency' targets - in effect the same thing.

Some health boards are already balancing their budgets by using non-recurring income to meet recurring expenditure. Not a sustainable medium term financial strategy for any organisation. Boards are planning to make savings totalling £274m this year, that's £72m (36%) more than last year. With capital spending going down the prospects for savings from service redesign will be constrained.

The increasing demands and cost pressures come from:

• Increasing elderly population leading to more long term conditions, GP visits and pressure on acute beds.
• Drug costs rising above inflation. Estimates vary from 4% to 11%
• Whilst a pay freeze will reduce some staff costs the consultant and GMS contract continues to exceed allocations. Locum doctor costs have doubled since 1997.
• The VAT increase from January will cost NHS Scotland an additional £23.3m.
• PFI contracts are a fixed cost that don't reflect funding changes. They already cost £136m per year and the Scottish Government has announced a return to this wasteful method of funding.
• Universal service provisions including free prescriptions, personal and nursing care and eye tests have rising demand costs.

Sadly, as is usual with Audit Scotland, some of their recommendations offer more of the failed top down approaches. More information should be collected, better productivity measures, shared services, leadership etc. No recognition is given to the service redesign initiatives that come from the bottom up using systems thinking principles. These are particularly effective in the NHS with its partnership industrial relations model and commitment to no compulsory redundancy. The report implicitly criticises this commitment without recognising that it is the framework that allows innovative solutions to come from staff who best understand the service.