This is from the letter sent to trusts.
We have decided to adjust both of these cases in light of the new information contained within the CSR, Operating Framework and OBR inflation forecasts. We recognise the scale of the productivity challenge that the revised financial assumptions imply; however it is important that the assumptions reflect the economic outlook and current policy framework.The last sentence is important. Monitor says that it has to change its rules due to inflation and the change in policies outlined in the Operating Framework. In other words, it is the government to blame. The letter then goes on to list the issues:
- A health settlement that, while generous when compared to other departments, represents a substantial challenge to the NHS given expected demand growth;
- Confirmation of the QIPP challenge to deliver £20bn efficiency savings by 2014/15;
- Significant inflationary pressures as noted in the projections released by the Office for Budget Responsibility in its economic outlook published ahead of the 2011 Budget; and
- The impact of specific tariff rules set out in the Operating Framework and the Payment by Results Guidance for 2011/12 that are expected to have a material effect on trust income.
- (Implied in #4, cutting the national tariff by 1.5%.)
So, first, there is not enough money (hardly "I'll not cut the NHS", eh?); second, even with not enough money, hospitals have to save more; third, the country is going to hell in a hand cart (rising inflation, with no chance of growth), so we have to cut the bottom line, welfare state, safety net; fourth, the government is cutting incomes to hospitals (changes in the tariff, hardly "I'll not cut the NHS", eh?); and finally, Lansley has set up Draconian rules about re-admissions which will be a financial drain on hospitals. Every single one of these is due to government policy.
It is worth categorising these points a little more exactly. First, the cuts. The increase in funding in the "health settlement" was a mere £24m. This is what Osborne has given us in exchange for believing Cameron when he said before the election that there would be "year-on-year, real terms increases". Twenty four million in a budget of over 100 billion is nothing. For example, yesterday I mentioned the cuts that Hull And East Yorkshire Hospitals NHS Trust will have to make over the next 5 years. This is to try and save £95m. That is just one trust, so £24m is paltry. As Monitor mentions, it is expected that there will be greater demands on the NHS in the next few years, since people are living longer and they need more expensive medical interventions. What Monitor does not mention is that as the economy gets worse, and more people are put out of work or forced into low pay jobs, their health will suffer; and it is the NHS that has to deal with that.
The mention in #2 of the "QIPP challenge" belittles its importance. Calling it a "challenge" is disgraceful since a challenge implies that the task is optional and that failure is acceptable, even honourable. The problem is that the £20bn "efficiency savings" are not optional, they must be achieved because it means that for £20bn of work that the NHS will do over the next 5 years there will be no money to pay for it. This is a cut.
In #5 I mention the tariff cut. Over half of procedures performed in hospitals are paid from a price list called Payments by Results, or the "tariff". The government intends to increase this price list so that it covers all but the most specialised care. How is the price determined? Well, up until now, the price was essentially the average cost of the procedure across all hospitals in England. Now, however, the government is moving to a fixed tariff determined by the bureaucrats in the National Commissioning Board (the new, unaccountable, quango that will do most of the work currently done by the Department of Health). As a foretaste of what is to come, Lansley cut all tariffs by 1.5% this year. Regardless of rising costs, regardless of inflation (#3), he arbitrarily cut the money hospitals are paid. This is a cut.
These three (and a contribution from the previous calculation of inflation) are the reasons for the 4% "cost savings" that hospitals are currently working towards.
Next, the non-cuts that may be cuts.
The world is currently volatile and commodity prices are increasing. This means that inflation is rising, and is expected to be more than the levels estimated in October last year. The problem is that Osborne determined in cash terms last year the amount of money the NHS would receive every year until the next election. Although Cameron pledged "real term increases" Osborne has given increases based on the optimistic estimates of inflation made last year. Now the estimates of inflation are higher, but Osborne has not provided any more money. Consequently, hospitals will have to make do with the cash they have. It may be that the OBR estimates of inflation are too pessimistic and that inflation will fall over the next few years; but since Osborne has not pledged to change the funding according to actual inflation rates we have to hope that this is the case. So if inflation continues as it is, we will see an addition cut in hospital funding, but if inflation goes down we will see a real terms rise in hospital funding.
The fourth point is a bit cryptic. Although Lansley abolished Labour's waiting times targets, he is keen on producing his own targets. In the Operating Framework 2011/12 Lansley produced a long list of fines. Basically, if a patient is re-admitted due to poor care, the hospital will not be paid for the additional work and will be fined. In #4 Monitor is saying that hospitals have to cut their costs to build up a warchest to pay for any possible fines. There is no implied irony, after all, if the hospital is making cuts in care, they are more likely to deliver poor care (this is what happened at Mid Staffs). The fines (and the lack of payment for remedial work) mean more cash (or less spending) for the government. This is a really cynical way to cut hospitals. So, if a hospital can avoid re-admitting patients then the "savings" they make to pay for fines become surpluses which they can re-invest (ie subsidise the services that they cannot do for the newly reduced tariff). If they end up re-admitting patients then they lose money and the government benefits.
Put together, the increase in inflation and the warchest to pay for fines account for the additional 2.5%.
It is quite clear that the actual reason for the huge hike in the "savings" hospitals have to make are due to the government and Monitor are merely acting as Lansley's henchmen. The worrying aspect, as I mentioned yesterday, is whether hospitals can manage to find another 2.5%.