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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) B Health care (£y-x) Education (£x) A x y z Cost …and now with real data.. Benefit Total resources available ? Cost Pledge/promise…er..aspiration Total Health care spending as % of GDP $PPP 12.00 Austria 10.00 Belgium Denmark Finland France Germany Greece 6.00 Ireland Italy 4.00 Luxembourg Netherlands Portugal 2.00 Spain Sweden U.K. 0.00 19 60 19 62 19 64 19 66 19 68 19 70 19 72 19 74 19 76 19 78 19 80 19 82 19 84 19 86 19 88 19 90 19 92 19 94 19 96 19 98 Per cent 8.00 TOT EU Will we get there? Total health care spending as a proportion of GDP: actual and projected EU (excluding UK) projections 12 UK spend 10 UK projections 9 8 7 6 Projected UK spend 5 Planned UK spend 4 3 2 1 2005 2003 2001 1999 1997 1995 1993 1991 1989 1987 1985 1983 1981 1979 1977 1975 1973 1971 1969 1967 1965 0 1963 Per cent GDP Projected EU spend EU (excluding UK) spend 11 Spend what we can afford? Projected health care spending per head and GDP per head: EU countries: 2001 Total health spending per capita (US$PPP) 3500 y = 0.0841x0.9949 3000 R2 = 0.7618 2500 2000 EU average: $1.834 1500 UK 1000 12000 17000 22000 27000 32000 GDP per capita (US$PPP) 37000 42000 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 13 12 Per cent GDP 11 10 9 Historic 8 Slow uptake 7 Solid progress 6 Fully engaged 5 4 1977/8 1982/3 1987/8 1992/3 1997/8 2002/3 2007/8 2012/13 2017/18 2022/23 ...Brown accepts Percentage change in UK NHS real and volume spending Real change: Per cent 10 2.1% pa Thatcher/Major 4.1% pa Major Blair 2.6% pa 4.8% pa Blair 7.4% pa 10 9 9 8 8 7 7 6 6 5 5 4 4 3 3 2 2 1 1 0 0 83- 84- 85- 86- 87- 88- 89- 90- 91- 92- 93- 94- 95- 96- 97- 98- 99- 00- 01- 02- 03- 04- 05- 06- 0784 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 Volume change: Percent Thatcher 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 Falling productivity NHS productivity and funding: English NHS 140 Index (1990/91=100) 135 Cost w eighted activity index 130 Funding adjusted for NHS inflation 125 Cost w eighted efficiency index 120 115 110 105 100 95 90 1990/1 1991/2 1992/3 1993/4 1994/5 1995/6 1996/7 1997/8 1998/9 1999/0 2000/1 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.