Devolution and health policy: A map of divergence within the NHS - 1st annual update
April 2007
Changing financial and regulatory environment
The financial arrangements for the UK NHS continue to be determined by the UK Treasury. NHS expenditure for the devolved nations is determined by a block grant which incorporates funding for various public service programmes including health. Funding is a concern across the UK, the devolved nations are addressing problems through service redesign and rationalisation rather than using the English model of competition or increased involvement of the independent healthcare sector. From 2008 the rate of budget growth will slow and will be allocated differently. It is likely this will result in increased financial pressures for all nations. The NHS is mainly funded through general taxation; direct taxes, value-added tax and employee income contributions, with local taxation providing further funding for social services.
The current reform programme in each nation could be considered an attempt to create a service that is sustainable without increased funding. England’s competition approach is likely to raise costs by incentivising treatment and increasing the number of access points (based on payment by case). In England the development of new local financial ideas, such as localised negotiation of the Quality and Outcomes Framework (QoF) or the localisation of unbundling Payments by Results (PbR), may occur. It is also likely that there will be increased innovation within the emerging incentives market.
The UK as a whole faces financial pressures from 2008 when the rate of growth in the NHS budget will slow. The proportion of UK general taxation divided amongst nations is decided by the Barnett formula. The proportionate slow-down will be the same across the UK. As yet this formula has yet to be challenged, although there is some disquiet amongst the English right who believe it overcompensates Scotland and Northern Ireland and complaints in Wales and Scotland that more funds should allocated to each administration. In 2006 Lord Barnett advised that there would be no formal review of the Barnett formula [go to note 21].
A further issue is the role of the UK within the European Union and the implications of devolution on national health policy. The EU recognises the UK as a single member state which in the future may lead to increased dialogue about which nation is the lead country on UK issues. There may also be implications for devolution and divergence if the EU sets standards for health, for example through EU target waiting times
England
In England, budgets for health care are set every three years through negotiations between the Chancellor of the Exchequer and Department of Health. In the rest of the UK, the devolved administrations set budgets separately. The central government uses a weighted capitation formula to allocate funding to the main purchasers of health, health boards and primary care organisations.
System reform in England is likely to create tensions for clinical collaboration between primary and secondary care. There are incentives for the primary and secondary care providers to acquire funding. It is likely that hospitals will try to increase referrals to boost income and general practitioners who hold commissioning budgets will face incentives to reduce referrals and save money. The recent aim is to shift outpatient appointments to community setting to reduce hospital referrals, visits and emergency admissions. This approach is based on assumptions that this will be more productive and cost effective. England’s market approach could however risk raising costs by incentivising treatment and a wider range of access points because they will be paid per case.
Scotland
Scotland hopes to avoid the transaction costs of the English market. Scotland is adopting some private sector provision but this is at the margins of activity. The introduction of tariffs for some elective procedures has occurred and it is something which is likely to feature in SNP and Labour manifestoes for the May 2007 elections. The purpose of the incentives is to promote regional working.
Some of Scotland’s decisions have reduced available funding, for example by paying for personal care from general taxation. The treasury made no provision for extra resources for countries or local authorities wishing to deviate from UK government policy. Scotland must, therefore, find the money from within its current funding allocation or use tax raising powers.
A recent report from Audit Scotland said NHS Scotland needed to show how resources were being employed. The accounting mechanisms between different parts of the system were not transparent and it was difficult to account for money spent.
It is thought that this difficulty will be increased by the direction of Scottish policy. The aim of redesigning services is explicitly motivated by making better use of available resources, recently there has been a move away from further increasing the number of medical professionals and an emphasis on workforce re-design to meet service need. There are complex barriers to demonstrating this achievement. Currently there are no accounting mechanisms able to gauge what policy aims to deliver and there are no financial measures to quantify savings made by anticipatory care initiatives at this time.
Northern Ireland
Historically Scotland and Northern Ireland have received a higher annual share of UK general taxation per head than in England.
John Appleby, chief economist at the King’s Fund, undertook a review of health and social care in Northern Ireland [go to note 22]. He urged more efficient use of resources and noted that productivity was 19 per cent lower than the UK average and hospital activity was 26 per cent lower than in England per available bed. Appleby suggested the continued separation of service providers and funders in order to sharpen incentives, but warned against the introduction of competition.
Not only has Northern Ireland been better funded than England, but due to the difficult political context, direct-rule ministers have avoided fully closing hospitals that are unlikely to have remained open had they been situated elsewhere in the UK.
There is also a major discrepancy in the funding of the hospital sector and the General Medical Services sector as pointed out by the Office of Health Economics in 2005 [go to note 23]. Where GMS funding was substantially below the UK average and hospital spend was above the average. While substantial
funding (around 40 per cent of the total Northern Ireland budget) is invested in health in Northern Ireland, there are still serious health issues. Northern Ireland has the UK’s longest waiting lists. Heart disease mortality is amongst the highest in Europe as are teenage pregnancy rates and has poor cancer recovery rates.
There is a widely held view that a devolved Northern Ireland needs to address management structures, management performance and make the health organisations more publicly accountable. Following to the creation of the Health and Social Services Authority (HSSA) and its Local Commissioning Groups there is likely to be a new emphasis on commissioning at a local level as a way of changing service patterns. David Sissling, an ex trust Chief Executive, has been appointed as the Chief Executive of the new HSSA, which may bring in fresh ideas to how health and social services are commissioned and delivered. The models for commissioning are still being worked through and accountability of trusts should increase as the HSSA has a role in overseeing the performance of the new trusts.
While there are still major differences in health policy, due to direct rule and the current reforms there has been at least a small shift towards the English health model of reform.
Wales
The ‘localist’ mindset in Wales encourages a view that each area should offer uniform services, which may not be the most efficient or cost-effective way of providing services.
Wales is facing particular service difficulties at present in the form of very long waiting lists and a lack of resources to increase capacity. It is difficult to change hospital services because acute trusts are extremely powerful while health boards are smaller and fragmented.
NHS Wales is unlikely to adopt English style competition, however, as with Northern Ireland, commissioning may provide a mechanism to change the movement of finance around the health system and to begin to debate service reconfiguration.