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The greatest ever leadershipchallenge for the NHS?

Introduction

In spite of reassuring politicalstatements suggesting real termsgrowth, commentators suggest thatthe NHS will face a real termsreduction of £8–10 billion in thethree years from 2011 and thedecline could continue beyond this.This means the need for strongleadership and radical productivityhas never been greater. Time is shortand experience of previous spendingcrises tells us that failing to rise tothis challenge now will have seriousconsequences for the NHS, itspatients and staff.

Work to deal with thisunprecedented challenge is neededtoday with the support and help ofall NHS staff and leaders, politicians,policy-makers and the public. Thispaper looks at the financial situationfacing the NHS over the next sevenyears and suggests how it should

respond to the most severecontraction in its finances it is everlikely to face.

The next two years: tough but manageable

The NHS did comparatively well in thelast Comprehensive Spending Review(CSR) although this was tighter thanprevious settlements. There was alarge reduction in the capitalallocation in 2010/11, apparently anover-provision for the costs ofpandemic flu preparations. The £2.3 billion of additional savings in theMarch 2009 budget had already beenincluded in primary care trust (PCT)allocations. The Department of Health(DH) has assumed 0.5 per cent extraefficiency for providers and created a reserve through a differentialbetween the total NHS uplift and PCT allocations; and by efficiencysavings, for example, in the pricing

JUNE 2009 PAPER 4

Dealing with the downturn

www.nhsconfed.org/leadership

The Future of leadership series of papers and events is designed to stimulate new thinking about NHS leadership and you can be part of the discussion. Have your say now at www.nhsconfed.org/leadershipThe NHS Confederation annual conference and exhibition, Local leadership: a national service, in Liverpool from 10 to 12 June 2009, willoffer the opportunity to progress the discussion further. Visit www.nhsconfed.org/2009 for more information about the conference.

• The NHS is facing a very severecontraction in its finance with an £8–10 billion real terms cut likely in the three years from 2011.

• The need for strong leadershipand radical quality and efficiencyimprovement is therefore greater than ever.

• History tells us that letting waiting lists grow, diluting quality and structural changeshould be avoided.

• The NHS will not survive theimpending spending squeezeunchanged.

• Courageous decisions are needed now to reshape services and help us prepare forthe most significant leadershipchallenge the NHS is ever likely to face.

Key points

Dealing with the downturn: The greatest ever leadership challenge for the NHS?

scheme for drugs. We expect somefurther announcements to completethe picture.

Some cost pressures forcommissioners will be a concern:

• the impact of Healthcare ResourceGroup (HRG) 4 appears to beinflationary for many commissioners

• the impact of changes to theNational Institute for ClinicalExcellence in Health (NICE) appraisalprocess for end of life medicines

• a very likely upswing in flu cases inwinter 2009/10

• a requirement to make an evengreater surplus.

Providers also face difficulties. There is an efficiency assumption of 3.5 per cent for 2010/11 and theoperating framework suggests a tariffuplift of no more than 1.2 per cent.There are a number of significantcost pressures.

• It would be prudent to expect thatthe Clinical Negligence Scheme forTrusts (CNST) contributions willcontinue to outstrip inflation by asignificant amount.

• The impact of any further fall in thepound may have an adverse impact

on the prices of goods and servicesfrom the Eurozone and the USA.

• Pay and price increases will begreater than the uplift in the tariff.

The operating framework states thatthe total 2009/10 surplus for the NHSis expected to be in the region of£1.35 billion after taking into accountthe draw-down of £400 millionwhich is permitted from the total£1.8m surplus forecast for 2008/09.

2011 and beyond:unprecedentedly difficult

The position beyond 2010/11 is verydifferent and extremely challenging.The Chancellor announced thatpublic spending will grow by 0.7 percent over the next CSR period andthis does not change in the mostlikely scenarios for the growth in theeconomy. Unfortunately, the call onthis increase from debt interest anduncontrollable elements such asbenefits is likely to consume anygrowth. The Institute for Fiscal Studiessuggests that this could mean a realterms reduction of -2.3 per cent in the resources available for othergovernment departments.

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Even at its most optimistic, otheranalysis seems to suggest either verymodest or no cash increases in NHSspending in the next CSR period andprobably well beyond. The real termseffect of this depends on the level ofdemand, the behaviour of pay andprice inflation, and the NHS share ofthe reduction. Demand is likely tocontinue to increase from long-termtrends in ageing, increasing diseaseburden from improved survival andrising fertility (particularly in olderwomen) as well as from the negativehealth effects of recession in areassuch as mental health and alcoholuse. The news is no better in terms oftrends in costs and prices. Even ifthere is price deflation in the widereconomy it would be prudent toassume a degree of inflationarypressure in the NHS as:

• health prices tend to rise faster thanthose in the wider economy

• public spending will be dominatedby the need to service debt and soNHS and social care spending willnot follow renewed growth in theeconomy. However, other prices,particularly energy, may start toincrease again as the wider economyrecovers or there is inflation as aresult of monetary policy

• new drugs and devices aregenerally thought to contributecost pressures of up to 0.5 per cent

• there is inflationary pressure of upto £640 million built into Agendafor Change, particularly where thelabour market may encouragepeople to stay in posts rather thanmove (there is some discretionavailable in how this applies)

• there will be an increase in employers’national insurance contributions in2010/11 of 0.5 per cent

Figure 1. Allocations up to 2010/11

Plan 2009/10 Plan 2010/11NHS £b 98.2 102.3Increase £b 7.3 4.1% change 8 4.1PCT allocations 80.0 84.4Increase £b 4.2 4.4% change 5.5 5.5Capital £b 5.4 4.7


This is a serious situation. In previousexpenditure squeezes, most whichhave been less severe and were lessprotracted than this one will be,questions were raised about thesustainability of the NHS model andthe capacity of NHS management todeal with the challenge.

The question is whether thisimpending crisis and the 22 monthswe have to prepare is a sufficientspur to extract very major efficienciesfrom the system and take somebrave decisions to reshape services.

‘With little or no cashincrease, from 2011/12 the NHS will need to plan for real terms funding to fall by 2.5–3 per cent perannum’

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• CNST fees will increase, particularlyif low interest rates lead to a change in the discount rate forsettlements

• there are significant costimplications in Modernising MedicalCareers and the last phase ofimplementing the Working TimeDirective for some providers

• social care is in an even moredifficult position because it has nothad the level of increases enjoyedby the NHS. There are likely to be some cost implications for the NHSfrom problems in social care.

With little or no cash increase, from2011/12 the NHS will need to plan forreal terms funding to fall by 2.5–3 per cent per annum. This isequivalent to a cut of between £8–10 billion over the next CSR andup to £15 billion over five years. It is

unavoidable that this will alsotranslate into fewer staff. The savingsneeded to deal with this will need tobe realisable as cash and so the levelof savings required may need to bevery much larger. David Nicholson,NHS Chief Executive, has suggestedthat this could be as much as £20 billion in the next CSR. Also,unlike other efficiency savings theseapply to all NHS expenditure,including GP and dental services,primary care prescribing and otherareas that have previously beenexempt from these requirements. Thislevel of funding will just allow theNHS to accommodate some increasesin demand and some limitedadoption of new drugs. Furtherefficiencies will be needed to supportinvestment in new services and thiswill mean even more demandingrequirements being placed onproviders of 5 per cent or more.

Figure 2. A possible Comprehensive Spending Review 2010 allocation

Debt interest

Ave

rage

ann

ual r

eal i

ncre

ase

8.4

1.7 1.9

-2.3

11

9

7

5

3

1

-1

-3Social security and

tax creditsOther AME Remainder: departmental

expenditure limits

Average annual real increases: April 2011–March 2014

AME = annually managed expenditure

Source: Institute for Fiscal Studies.


The NHS did not always make thebest use of all the additional money it received and it should not wastethe opportunity that the crisispresents.

Learning from history:bad ideas

History suggests a number ofapproaches should be avoided.

Letting waiting lists grow – thisprovides very small financial reliefsince a slip in waiting times onlyrepresents a one-off saving ofvariable costs equivalent to thenumber of days by which waiting isextended. There are significantadditional costs of managing longwaiting lists. More importantly,history suggests that this is one ofthe problems that leads to the wholeNHS model being challenged.

Diluting quality – previousexperience suggests that, even ifreducing quality were possible, it islikely to add to costs rather thanprovide significant savings, givenpublic expectations and theregulatory framework we have nowdeveloped. A number of related falseeconomies such as allowing backlogmaintenance to stack up should alsobe avoided.

Slash and burn and ‘salami slice’savings – indiscriminate expenditure

‘Is the impending crisis andthe 22 months we have toprepare a sufficient spur toextract efficiencies from the system?’

cuts are ineffective and damagingbecause they focus on cost ratherthan value. They unduly penalise the efficient and leave the inefficient with untapped savings.

Letting pay get out of line – whilepay levels cannot escape attention it will be important not to repeatprevious mistakes where payrestrictions led to vacancies, highagency costs, an exodus of staff and a number of problems withlong-term consequences (includingfuture pay inflation).

Cutting training – previousexperience shows that poorlythought-through cuts in training leadto avoidable shortages as finances

recover and produce demand foradditional staff. This is likely toproduce further pay inflation.

Cut prevention – reducing publichealth expenditure to protectcurative services is always a mistakeand can potentially be disastrous.

Learning from history:caution required

A number of strategies do not alwaysseem to yield the results that arehoped for and should be approachedwith care:

Centralisation of support functions –some of the experiences ofcentralising back office, procurement

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Key principles

Some important principles will have to be adhered to in dealing with these challenges:

• The NHS underlying principle of social solidarity, in which the better off and well support those in need, should be followed. The NHS Constitutionelaborates on this and promises a comprehensive health service largely free at the point of use. This is an important test for any proposals.

• Frontline services come first, but long-term improvement should not be sacrificed for short-term expediency. Sometimes investment inprevention, improvement, information and infrastructure now, may mean that frontline services can be even more productive and effective in the future.

• Where possible quality improvement through innovation and redesignshould be the preferred route to improving efficiency. This requires rigorous use of evidence on effectiveness.

• The principles of co-production, subsidiarity, alignment, clinical ownership and leadership are sound. However, their application may need to change. In particular there are questions about whether some of the system reform policies are aligned with the needs of thechanged world. A number of them are designed for a system with growing funding.

are several reasons why this might be the case:

• supplier-induced demand –demand management may simplycreate space that allows a reductionin treatment thresholds

• misaligned incentives – hospitalshave little incentive to help reducedemand where they have sparecapacity

• neglect of behavioural incentivesthat encourage work to be passedon to other parts of the system

• demand management thatintroduces an additional step in the clinical process also has thepotential to add more cost than value.

One important lesson is thatschemes need to be on a sufficientlylarge scale to allow fixed and semi-variable costs to be strippedout of the provider. Secondly,schemes need to remove capacity or have controls on secondary care volumes. Without thesemeasures demand management is likely to increase the total costs of the system and, in somecircumstances such as emergencycare, actually increase demand bycreating incentives for patients totake up services.

Many of the strategies to shift carefrom secondary to primary care have fallen into these errors andshifting care has been mistakenlyviewed as an end in itself rather thanthe wider goal of better-designed,more accessible and integrateddelivery.

Price competition – this does not fitwith patient choice. The risk is that

providers can exploit this to obtainincreases in prices – particularlywhen they have a monopoly. It canalso lead to ‘a race to the bottom’which reduces price and quality.

Reducing staff – while it is inevitablethat reduced real funding will lead toa need to reduce staff in some areasthe costs of redundancy andpensions are often significant andloss of knowledge and experiencehas hidden costs.

Responding to thechallenge

Diluting quality and extendingwaiting are not advisable and someof the approaches used before havebeen exhausted. Some of the areasemphasised in the March 2009Budget such as back office,procurement, the PharmaceuticalPrice Regulation Scheme (PPRS) andasset management have alreadybeen accounted for; others havepotential and require seriousattention, but are nowhere near thescale required. While managementand infrastructure costs will needvery rigorous scrutiny the majority of resources are committed through clinical decisions. Thismeans that a more fundamental look at how the service runs isrequired. This will need to focus on using quality and processimprovement and the adoption ofinnovative, evidence-based practice.


‘History suggests a numberof strategies should beavoided or approached with caution’

and decontamination have notalways been happy ones. This maybe largely due to poor execution and planning, and the scale and risk-averse nature of the procurement. Often they aremonopoly providers and so it isdifficult to know if value for money is being provided.

Mergers – these are too oftenproposed as an answer withoutproper diagnosis. As a result theytake longer, produce more disruptionand fewer benefits than was initiallypromised. There are three importantlessons here:

• with increasing size the costs ofcomplexity outstrip economies ofscope and scale

• if one part of a merger isdysfunctional the resultingorganisation will probably bedysfunctional

• the time taken to realise benefits isvery significant.

Structural change – history suggeststhat the savings and benefitsachieved from structural changestend to be smaller than predictedand the costs and opportunity costsmuch larger. There are times when itmay be appropriate. However, toooften it is the first resort of those with limited ideas, provides a hugedistraction from the real business and offers an excellent excuse forlater failures.

Demand management – this is animportant strategy and will need toform part of the response to thiscrisis. However, we need to learnfrom the many attempts that havehad limited success or actually led to an increase in activity. There

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Improving quality and efficiencyWe know that there is still very great potential for majorimprovements in the way that manyservices work. In many cases thesechanges will also improve quality,safety and patient experience. Thebig gains are most likely to comefrom the redesign of clinical services. These are difficult areas and need to be done on a sufficiently large scale to releasesavings. They may also need upfrontinvestment. Not all qualityimprovement saves money, but a lot does, for example:

• reducing variation – in referral rates, re-attendance rates, length of stay, day case rates, prescribingand other elements of clinicalpractice

• adopting best practice – in pathwaymanagement, operationalmanagement, back office and other functions

• improving quality and service designto reduce errors, rework, duplicationand overlaps and to improve patientflow through the system

• releasing productive time for staff – through rigorous redesign of methods and skill mix

• creating flow and eliminating the waste from poorly-designedsystems and the consequences of demand generated by failuresand errors

• reducing complexity – one of themost significant drivers of costs and

errors is unnecessary complexityand the response to this is often toadd mechanisms and costs to dealwith this.

Cost improvement: supportfunctionsNotwithstanding the caveats abovethere are more opportunities fororganisations to work together toreduce operating costs. NHSEmployers operates several examplesof this, including NHS Jobs and NHSCareers. Some services have beenexamined, but a number – forexample, pathology – remainstubbornly embedded in hospitals ina way that would not be recognisedin other countries.

Strategic changes in provisionSimply improving the efficiency of thesystem will not release sufficient cashsavings unless providers can extractcosts in large chunks which allowoverheads to be reduced. Without thisimproved commissioning may justmove financial problems around thesystem rather than tackle their rootcause. For example:

• sweating assets – it is still the casethat many buildings, laboratories,scanners and other high cost assetsare used much less intensively thanthey could be

• estate rationalisation – includingopportunties from using the widerpublic sector estate

• hospital reconfiguration – this willhave to be done without majorcapital investment or recourse tothe private finance initiative (PFI)and in ways that extract major costsfrom sites

• using market management toolsand bringing in different providers,


‘A more fundamental look athow the service runs isrequired, including focusingon quality and processimprovement and adoptinginnovative evidence-basedpractice’

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The Productive Ward – Royal Liverpool Hospital

Royal Liverpool Hospital was one of the first test sites for the NHS Institute forInnovation and Improvement’s Productive Ward project in 2006. A 26-beddiabetes/endocrine and general medicine ward was selected because of itslonger lengths of stay compared to the national average and relatively highinfection rates.

Keen and committed staff collected data on length of stay, meal wastage,infection rates and sickness absence. The ward team and key departmentswere involved in mapping existing processes and making suggestions forimprovement. New processes were trialled within two weeks.

As a result:

• meal wastage fell from 11 per cent in December 2006 to 4 per cent in April 2007

• direct patient care time increased from 27 per cent to 40 per cent for sisters,and from 25 per cent to 45 per cent for staff nurses.

Source: NHS Institute for Innovation and Improvement.

while being careful not to createsupplier-induced demand andovercapacity.

While making existing servicesbetter, faster and cheaper will beimportant, it is unlikely to lead to theradical shifts in efficiency that arerequired. Experience in otherindustries suggests that existingproviders generally do not producetruly disruptive innovations. In someareas where we need very radicalimprovements in productivity, such as community services, newapproaches and new providers may be the answer.

How resources are allocatedAttention will need to be paid to the following:

• Reduced hospitalisation, highertreatment thresholds and volumemanagement – it is going to beimportant to ensure that thethreshold for treatments are


current activity; more treatments andapproaches in use should be subjectto this type of zero-based approach.

This means that PCTs need themeans to control volumes of careand to decommission services. Verylittle of this can be achieved withoutclinical engagement.

Organisational readiness

A number of elements will need tobe in place if local systems are to beable to weather the challenge. TheNHS Next Stage Review contains auseful framework for thinking aboutthis, which we have adapted:

• having a clear and shared visionand values for the organisation and the local system

• having a well-developedmethodology for making change happen

• ensuring that all the parts of the system and different policyinstruments are aligned

• making sure that the behaviours of the different parts of the systemare appropriate.

Vision While many organisations haveworked hard to develop strategiesand a long-term vision there is stillmore to do in this area and it is likelythat many of these strategies willneed to be revised to take into

‘In areas where we needradical improvements inproductivity, newapproaches and newproviders may be the answer’

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appropriate. This is however, verydifficult to manage in practice.

• Checking that services that havedeveloped over time still add valuefor their users.

• Removing overlaps from servicesthat have evolved and been addedto piecemeal over time.

• Shifting resources from lesseffective areas and investment toreduce the disease burden – thereneeds to be a rigorous examinationof opportunities to swap betweeninterventions that produce morehealth gain for the same money or,more importantly, the same for less.In line with a shift from a focus onvalue rather than cost this meanslooking at cost effectiveness overthe long term.

• Approach to innovations versusexisting treatment – generallyinnovations are required todemonstrate greater value than

Releasing clinical time

The New Ways of Working programme, led by the National Institute forMental Health in England, changed the way mental health staff work. Itsupported mental health trusts to innovate, challenge and develop newfulfilling care delivery roles.

One of the benefits of the programme was service users being seen by themost appropriate team member, rather than consultant psychiatrists havinglarge caseloads of patients to see, regardless of need. In the North West, fivemental health trusts engaged in the Creating Capable Teams Approach,which involved investigating reductions in the number of consultantsinputting into the units and releasing expensive clinical time by using moreadministrative and housekeeping staff. In Cumbria careful job planninghighlighted the tasks a consultant needed to do, meaning they recruited tofour consultant posts, rather than six.

Source: Moving on: from New Ways of Working to a creative, capable workforce.NHS Confederation Briefing 177, March 2009.

require the entire patient journey tobe redesigned. Unfortunately thepayment system and the way thesystem is structured are often notdesigned in a way that will help withthis. Organisations are structured sothat they only produce parts of thepathway and are incentivised toproduce improvement within theircompartment, but not to reduceincome or activity. Optimisation ofindividual parts can produce wholesystem solutions that are very sub-optimal and costly. In the case of long-term conditions there are fewincentives for hospitals to deploytheir expertise to help reducedemand or to promote changes intreatment approaches to more cost-effective modalities.

Rigid interpretation of the rules canmake Payment by Results a barrier tolocal redesign and service change,and discourage the adoption oftechniques that shift work fromprofitable HRGs to less profitableones. For example, treating occlusionof the femoral artery withinterventional radiology offers a safer and cheaper alternative tomany patients than a femoral arterybypass graft. However, it makes asignificantly smaller contribution tooverheads and in a trust with serviceline management represents asignificant shift in income from oneline to another. Community servicesalso tend to be structured in waysthat reflect history and staffinggroups, rather than in how they addvalue to patients. Virtual wards andteams specialising in long-termcondition management are anemerging response to this, but theseand other disruptive approaches areheld back by the persistence of the‘legacy’ model still in place.

A number of significant changes in current policy are going to be needed:

Change the payment system forlong-term conditions – we need ashift to capitation payments for long-term condition pathways. Thiswould require hospitals and otherproviders to hold more of the riskand take responsibility for casemanagement and co-ordination.

Faster progress to normative tariffs –there will need to be a far more rapidmove to normative tariffs, includingsome value-based tariffs forprocedures where we want toincentivise changes in volumes.

Bundled payments for the wholepathway – including rehabilitationand after care for some emergencyand elective episodes. In some casesincorporating social care into thesewould make sense.

Accelerate the development ofpathway-based approaches – ratherthan develop these pathways manydifferent times, developing genericapproaches and service specifications that can be customised and adapted locallywould mean it is more likely we canachieve some of the changes weneed. To allow for rapiddevelopment and to ensure thatproviders can make large enoughshifts in activity to release costs, PCTs will need to collaborate much more in the development and implementation of theseapproaches.

NICE – it may be time to look againat the proposal that NICE should begiven a total resource ceiling.


account the changed circumstances.Vision and values are often less welldeveloped at a local system level. This will require attention as it is important as a reference point forwhen relationships in the systembecome fraught under the pressureof shrinking resources.

Method for delivering change Successful change managementrequires an understanding of theurgency of the situation and amethodology for making the changehappen at the front line. Qualityimprovement: theory and practice inhealthcare, a review of the literatureon change methodology byManchester University, suggests thatthere are several methods that work.What is often missing is consistent,long-term implementation andensuring that frontline staff share acommon language to describe whatis being attempted. It is not clear thatthere is yet enough of a sense ofurgency. There is a concern that theknowledge and ability to implementchange and improvement methodsare not sufficiently embedded inenough places.

Policy alignment and systemmanagementSome policy instruments may notnow be fit for purpose as they wereconceived to operate in a systemthat was growing.

For example, extracting savings fromthe system while improving care will

‘Extracting savings from the system while improvingcare will require the entirepatient journey to beredesigned’

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Create more disruptive change – insome cases, where it is thought thereare particularly large efficienciesavailable, an even more disruptiveapproach to creating change may berequired to extract the largeproductivity dividend that is thoughtto be embedded in some services.This means much more use ofpayment and contractingapproaches that allow redesign ofthe pathway and providers and new entrants offering radically differentapproaches, rather than simplymoving staff from one organisationto a new one. History suggestsincumbent providers are less able to develop and implement.Whether commissioners can create the headroom to permit new entrants on a sufficient scale to allow entire pathways to beredesigned is not clear. Whetherthese providers exist is also doubtfuland the environment for creatingnew ones is unpropitious. Care isrequired not to add additional coststo the whole system. Somewhere, forevery new service, there must be acash releasing reduction in costselsewhere. This will require a changein the payment and contractingmechanisms to align them with theobjectives of a changed world.

Create mechanisms to allow assetrationalisation – the ownership ofexpensive assets and the need tofind funding to pay for them ispossibly one of the biggest barriersto rethinking the way that care isprovided. Mechanisms are needed toallow organisations to reduce theirasset base in an ordered and well-planned way – perhaps usingthe wider public sector estate tocreate opportunities for cheapersolutions. A property fund will be

required to take ownership of assetsalong with some type of set asidescheme or other mechanism to allowNHS providers to reshape their assetsand estate, rather than have to workto fill them.

Imaginative solutions for smallerhospitals – some of these will not beable to become foundation trustsand takeover may not always be anattractive option. Vertical integrationwith primary care, the divorce ofclinical operations from assets andother innovative solutions that allowlower cost services which maintainaccess, will be needed.

Practice-based commissioning(PBC) – there is an important role forPBC, but it is still not clear how tomake it operate on a scale largeenough to have a major impact onthe system. Building integratedsystems for commissioning andprovision around PBC groups thatinclude specialists might be one way to provide the leverage required to make change. This would create integrated care aroundspecific pathways.

Competition – there is still animportant role for competition,choice and other elements of systemreform. In some areas morecompetition will be the answer; inothers a range of differentapproaches will be needed. Differentapproaches to competition arerequired to meet the nature of theservices being provided and theproblems that need to be solved.

Co-operation – given that the scaleof the challenge will requirecollective action across local healthsystems and across complete


care pathways, more attention needs to be given to describing what good co-operation looks likeand how to avoid collusive ways ofoperating which exclude newentrants and ideas.

Information – despite the problemswith the national system betterinformation will be crucial to supportmany of these changes.

Appropriate behaviours

The NHS Next Stage Review stressedthe importance of the changeprogramme being underpinned witha strong vision, appropriate methodand rules of behaviour. These areeven more important in anenvironment in which it will not bepossible for individual organisationsto weather the storm without beingpart of a wider, more resilient systemcapable of co-operative action. Weexplored some of these issues in aworkshop with PCTs and providersfrom the West Midlands.

Ways of behavingWhile the system is rules-based it has to be driven by a shared vision.This means that organisations which are significant actors in thelocal system must not walk away,even where solutions may requirethem to agree to measures that are not in line with their individual

‘It will not be possible forindividual organisations toweather the storm withoutbeing part of a wider, moreresilient system capable ofco-operative action’

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particularly feel the tensionsbetween organisations and find thebalancing of trust with their localobjectives most difficult

• develop a high level of transparencyin decision-making processes

• ensure that there is a proper voicefor other stakeholders who feel thatthey have a role in the system.

Local leadershipLocal leadership will be key tomeeting the challenges we face butthe principle of subsidiarity will mean that there are also times where it will be more appropriate for PCTs to act collectively at aregional or sub-regional level, oreven for there to be an agreednational process for dealing withsome issues. In a number of areas theredesign of care will require a newlevel of collaboration with social care– just at the point where this may bemost difficult.

Some treatment restrictions,allocative efficiency changes ordemand management measures onlymake sense at a regional or nationallevel – in some cases because theyrequire a change in the approachtaken by NICE; in others because it will be necessary to avoid thedevelopment of an extremepostcode lottery. The developmentof a normative tariff, changes inincentives, developingcommissioning approaches andother major changes do not need tobe developed 152 times. There ismore of a role for PCTs or groups ofPCTs to take responsibility fordeveloping some of these elementsof policy on behalf of the rest. Insome cases national or regionalsolutions will be required.

Challenging options

It is inevitable that a number of more challenging options will beproposed. The essential test iswhether they surrender the keyprinciples of the NHS. A number ofthe most popular ideas in this areaare unlikely to provide an answer tothe challenges we face.

Commissioning – somecommentators have questionedwhether in some cases thecommissioner-provider split is likelyto yield the results that we need.However, alternative ideas aresketchy and the benefits of anyalternative approach need to be setagainst the dislocation created byfurther reorganisation. Integratedcare approaches may groworganically out of pilots orexperiments.

Charges for GP visits, out of hoursand A&E (excluding health checks,contraception advice and screeningto avoid undermining otherimportant policy goals) – this ideadoes not fit with the principles weproposed for assessing proposals, butit will undoubtedly be put forward.International experience suggeststhat a modest co-pay has little or nolong-term impact on utilisation and,if payments are large enough toaffect it, there is the danger ofpatients presenting later with highercosts, poorer outcomes and anadverse impact on equity. Thepotential for other perverse effectsare significant – for example, inencouraging out-of-hours use ordiscouraging GPs from being willingto accept telephone consultations.Children and older people wouldneed to be exempt, but we know


short-term interests. This requireshigh-quality, values-based leadership that has a long-term focus and puts a premium oncontinuity of leadership. The ability of individuals to take risks in trustingeach other was thought to be veryimportant in delivering a complexstrategic change. This wasparticularly true for the large acutetrust which had made a decision to change its configuration and toshift from a strategy based ongrowth and expansion to one based on quality and specialisation.

Our workshop participants suggesteda number of important elements indeveloping high-qualityrelationships:

• have a clear and shared visionbased on population and patientneeds – a failure to demonstratethat the values and strategy oforganisations is based on this ispotentially fatal for staffengagement and public credibility

• deal with risks together wherepossible

• don’t imagine that this will always produce a win-win in theshort term

• ensure that there is confidence thatall other parties will deliver

• don’t revert to defensiveinstitutional silos under pressure

• create trust at all levels of theorganisation – middle managers

‘Local leadership will be keybut in some cases national or regional solutions will be required’

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that approximately 45 per cent ofconsultations are with children orolder people and that many attendfrequently. Well over 50 per cent arefor chronic conditions or for followup of existing treatment. Europeanexperience suggests that systems forexemptions, reimbursement throughthe welfare system or at least a capon annual spending would berequired. Once the costs ofadministering these and of collectingthe money and holding cash arefactored in, the income raised maybe significantly less than it might first appear. The cost of meeting achange in expectations in terms ofcustomer service – a possiblepositive result – could further offsetthe income raised. Similar argumentsapply to charges for hospital stays.

Pay and pensions versus jobs – aspay and conditions worsen in thewider economy questions will beasked about what will appear to bevery advantageous pay and pensionarrangements. This option maydisappear if pay in the widereconomy picks up, but it is notpossible to pretend that the trade-offs and options in this areacan be ignored. This requires somenational action as it will be difficultfor individual organisations to defect because of the need forexpertise in this area and the dangers of being a first mover.However, without such a strategy some will defect from the system. Pay and pensions need to be considered as a totalreward package and would need to be addressed across the public sector.

Treatment prohibitions – there is some scope for prohibiting

particular treatments, but thedifficulty is that the list of areaswhere there is no evidence ofeffectiveness is short and the savings available relatively small.

Limiting the NHS basic package – it could be decided that the NHSshould exit some areas of careprovision. Areas could be selectedbecause they deal with lifestyle orcosmetic problems, they have noevidence base, they are insurable or because non-availability mighthave little impact on populationhealth. Examples could include in vitro fertilisation (IVF),homeopathy, elements of dentistryor free nursing home care, withthese areas moving to out-of-pocketpayment, any state support only for the most needy and insurance for catastrophic costs. This would be similar to the system in theNetherlands.

These options would require a very significant dialogue with thepublic and in some cases thedevelopment of a new insurancemarket, and there is little evidence of any appetite for this. We believe it is difficult to embark on this before we have made a major effort to demonstrate that allefficiency avenues have beenexhausted.

An unprecedentedleadership challenge

In the past there has been atendency to solve problems by usinggrowth rather than making difficultdecisions and there has been very little decommissioning. It is very difficult to create viable


provider plans that assume ashrinking income base and evenmore challenging to keepstakeholders and staff engaged. The policies and approach that wehave used to manage growth willneed to adapt to a new and morechallenging environment.

There are several hurdles: firstly, tofind ways of achieving significantquality and efficiency improvementsand cost reductions that do notdamage patient care or compromiselong-term success; secondly, torelease large amounts of cash forreinvestment elsewhere; thirdly, todo this with little time or capital; and finally, to do this in anenvironment in which politicians andstaff will be reluctant, for differentreasons, to hear difficult messagesabout the future. There is animportant question about phasing.Rather than four to five years of large real terms reductions inspending it might be delivering avery significant change in the pattern of services in 2011/12.

Facing this unprecedented challenge throws up a number ofhazards. The first is not acting now to prepare for 2011. Secondly, wecould repeat previous errors andreinvent solutions that didn’t work last time. There is a significant danger of being diverted by structural change.

‘The policies and approachthat we have used tomanage growth will need to adapt to a new and more challengingenvironment’

11

whole NHS into question. The NHS hassurvived three of these in the last 25years. We cannot assume it will survivethe next. Only strong leaders who are

prepared to make courageous movesnow will get us through one of thegreatest challenges the NHS is everlikely to face.


Micro-improvements in provision are important but not sufficient toclose the gap – big problems needbold solutions. Changes need toallow providers to strip out real costs for real cash. At some point this will mean fewer staff andkeeping the best. Thereforemaintaining morale and ensuringquality could be one of the mostsignificant leadership challenges inthe history of the NHS.

The need to address the challenge is obvious, but action is requirednow and at all levels. Many staff will require new skills andapproaches to help them do this. We will need to strip away theobstacles that stand in the way ofinnovation and change and beprepared to challenge much of what we currently do.

It is possible that there will be anupturn in growth which will allowpolitical commitments to real termsgrowth to be met, but planning onthis basis would not be wise. Historysuggests that failing to deal with thespending squeeze will lead toproblems large enough to call the

‘The need to address thechallenge is obvious, butaction is required now and at all levels’

Further copies can be obtained from:NHS Confederation PublicationsTel 0870 444 5841 Fax 0870 444 5842Email [email protected] visit www.nhsconfed.org/publicationsThis work is licenced under the Creative Commons Attribution-Non-Commercial2.0 UK: England & Wales License. To view a copy of this licence, visitcreativecommons.org/licenses/by-nc-nd/2.0/uk

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The NHS Confederation

The NHS Confederation is the only independent membership body for the full range of organisations that make up today’s NHS. Our ambition is a healthsystem that delivers first-class services and improved health for all. We workwith our members to ensure that we are an independent driving force forpositive change by:

• influencing policy, implementation and the public debate

• supporting leaders through networking, sharing information and learning

• promoting excellence in employment.

Support for members

The NHS Confederation is keen to support members through theseunprecedented challenges. Our programme of work is quickly taking shape. Specifically:

• our website is the place to come for useful resources, including case studies and our Lean thinking for the NHS, Breaking the rules and Prioritysetting publications

• we are actively discussing opportunities for joint working with leaders in themedical profession, the DH and other national stakeholders

• a series of seminars to discuss ways through the downturn

• NHS Employers and our networks are working with members on innovativesolutions to commissioning and delivering services.

Please email [email protected] for more information.

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