FIN(3)-18-09 paper 2
Welsh Assembly Government Draft Budget 2010-11 – Evidence from Welsh NHS Finance Directors
The draft budget laid before the National Assembly for Wales
proposes a revenue Health and Social Services
budget of £5.8bn for 2010-11. This is some £41m less than that set out in the indicative budget and represents an increase of 2.6% above the 2009-10 budget compared with the indicative budget increase of 3.3%.
Whilst it is acknowledged that this reduced uplift reflects the Welsh Assembly Government’s overall budget reduction from decisions at UK-level, it is by far the lowest increase received for many years against a backdrop of increasing non-avoidable financial pressures.
The main priority for the NHS is to maintain and improve safe, high quality citizen-focused services but this becomes increasingly challenging in the context of constrained budgets. The nationally negotiated pay settlement, increases in demand, particularly in relation to continuing NHS healthcare, costs of new drugs and technologies as well as the requirement to deliver Ministerial priorities will place enormous financial pressure on the Health Service in Wales in 2010-11.
In order to meet these challenges, it is recognised that there needs to be transformational change in the way that we deliver services. Such wholesale changes will take some time to deliver but it is important that this journey is started immediately. The opportunity to secure monies from the Invest to Save Fund is welcomed to support initiatives to deliver both increases to productivity and cash releasing savings.
The scale of the challenge, however, cannot be underestimated as savings requirements are estimated to be 5 – 6% for 2010-11. There is a concern about the pace by which the required transformational changes can be implemented and so shorter-term savings plans will also be fundamental to ensuring financial balance. This creates a dichotomy as such short-term savings may well require reductions in support staffing, infrastructure and training which makes the job of transformation in future years more difficult to achieve.
2. Service Pressures and Risks
2.1 Inflation Costs
Whilst the costs of inflation
in the NHS for 2010-11 have yet to be fully assessed, a significant element is in relation to previously negotiated pay increases as part of the 3-year pay deal. This is estimated to result in an overall inflationary increase of 2.7% above current baselines.
2.2 Access 2009
The Assembly’s maximum waiting time target from referral to treatment of 26 weeks is set for delivery by December 2009. The service has made extremely good progress towards this target but the costs of ensuring ongoing sustainability remain a risk. This is due to continuing increases in demand for services as the waiting times for treatment falls. Whilst these costs can partially be met by increased productivity, services such as orthopaedics will result in additional costs as a significant proportion of the treatment cost of hip and knee replacements is the cost of the implant itself.
2.3 Growing Elderly Population
The NHS continues to experience increased pressure and demand upon its services due to an ageing population with more elderly patients whose needs are often more complex with other co-morbidities and chronic conditions. The provision of appropriate services to meet care needs at all levels including acute, rehabilitative and community settings is a major priority for health and social services.
The impact of the growing number of elderly patients has led to the increased numbers of patients eligible for continuing NHS health care. It is important that these patients receive the appropriate care in the right clinical setting. However, as a result of the Grogan legal judgement, the impact on the Health budget is substantial. In terms of expenditure, there have been significant increases in Mental Health
and Learning Disability costs where there has also been marked shifts of costs previously funded by Local Government to Health. Whilst it is extremely difficult to forecast with absolute certainty, based on the current growth in demand and costs this will place a 2 – 3% financial pressure to Health Boards
hospital and community budgets.
2.5 NICE/High Cost Drugs
Based on the published work programme of NICE and the All-Wales Medicines Strategy group, Public Health Wales have undertaken an exercise to estimate the likely impact for 2010-11. This is extremely difficult to estimate with certainty as some of the drugs to be reviewed have yet to be licensed and the likely decision by these bodies is also unknown. Nevertheless, based on best professional knowledge, the costs of new drugs in 2010-11 is estimated as a 1% cost pressure.
2.6 Policy and statutory compliance implementation
There are numerous examples of Welsh policy initiatives within the Health and Social Services Department that if unfunded will place significant additional pressures on Hospital and Community Health budgets. The most significant issues facing the NHS for 2010-11 are the costs of the standardisation of nurse uniforms and ward housekeepers. With additional legislative requirements, these could amount to an additional 0.7% pressure if unfunded from central budgets.
2.7 Other Cost Pressures
In addition to the pressures set out above, there are numerous other cost pressures that inevitably arise for which there is no additional funding source. These have historically tended to be in the order of 1% and Health Boards and Trusts will need to make an equivalent amount of general efficiency savings in order to meet these additional costs.
As highlighted, there are numerous service and financial pressures that will impact upon the NHS Wales
in 2010-11 and beyond. The scale of these is such, that they are likely to exceed the proposed growth monies available on Hospital and Community Services
allocations by 5 – 6%. Whilst it is clear that there is always scope for further efficiencies and improvements, it is doubtful if the service has the ability to manage such a shortfall without serious repercussions for service delivery and the affordability of the current workforce.
3. Planned Improvements In The Use Of Resources
3.1 Continuing Cash Releasing Efficiency
During 2009-10, NHS bodies have needed to significantly increase levels of cash releasing efficiency savings to meet shortfalls from the financial settlement with most bodies needing to make savings of circa 5% if they are to deliver financial balance. The service in response to the significant savings requirement has undertaken a full range of efficiency measures which includes improvements in procurement, utilisation of staff, reductions in the cost of temporary staff, service modernisation and the ongoing elimination of waste and duplication. Despite these efforts, due to the scale of the challenge, sizeable deficits are currently being experienced in a number NHS bodies and are largely as predicted in the response to the 2009-10 draft budget settlement. Given the numerous emerging service pressures and the proposed level of growth, the ability to achieve further annual savings of this scale will present a challenge of an unprecedented scale within NHS Wales unless there is major strategic and transformational change to the way that services are currently provided. This will undoubtedly require a considerable change for the workforce and workforce costs if a sustainable financial position is to be achieved given that 78% of NHS expenditure is on staffing.
3.2 Improvements in Productivity
Considerable attention has been given to increasing the utilisation of facilities and services to improve the speed of access for patients as well as delivering high quality care. The delivery of the Access 2009 targets has especially led to reduced lengths of stay, increased use of day case procedures and the reduction in DNA rates at outpatient clinics. It is recognised, however, that whilst this has created an environment to deliver increasing throughput, this additional work has also generated substantial additional costs. In order to ensure that all services benchmark with the very best performance, there now needs to be a more vigorous and fundamental change programme to make the stepped changes required.
3.3 Shared Services
The NHS has led the development of shared services in the delivery of high quality and efficient corporate services, including payroll, procurement and finance. The establishment of the Shared Services Board to oversee the future policy direction is seen as a significant step forward in driving this agenda. The Directors of Finance wholly support the direction of travel.
3.4 Reconfiguration of Services
Health communities throughout Wales are engaged in developing and implementing plans to provide more suitable services to reflect the changing health needs of their populations and to ensure that they meet modern clinical standards. These plans will often require capital investment to facilitate the change, but more often it is redesigning clinical models which ensure that patients have the right care at the right time and place. Such an example is the model that are proposed to shift care out of hospital into community and primary care settings. Fundamentally, this also reviews the manner by which emergency care is provided within hospitals. Such changes are often not popular with the populous as there is a perceived loss of services when beds are reduced or access to hospital services reduced. There will be a challenge to balance the views of the citizen and health professionals as well as the need for bridging finance. It will therefore, take some time to implement such changes and to realise the significant benefits that should occur. These strategic changes will be reflected in the new 5 year planning requirements which will ensure a sharper focus on year on year delivery milestones to ensure the dovetailing of strategic and operational plans.
3.5 NHS Reorganisation
The reorganisation presents significant opportunities to improve efficiencies across the whole patient pathway. It is important that key posts are now quickly filled, including the local Directors of Public Health, to ensure that appropriate skills and knowledge are in place to support robust citizen-focused decisions about the level and manner by which services should be provided in the future.
3.6 Quality focused patient care
The quality and finance agenda are closely linked as improved quality often leads to lower costs. This has been visibly demonstrated in the 1000 lives campaign. The intention is to ensure that Wales delivers world-class integrated care over the next 5 years and finance professionals welcome the opportunity to be part of this agenda.
The budget proposals for next financial year, pose a considerable challenge to the Health Service. The increase in resources will not be sufficient to meet the significant challenges without further substantial transformational change and improvements in efficiency.
There is concern about whether the pace of such changes will fully meet the financial challenge in the short-term so it is likely there will be a need to make difficult choices impacting on services and workforce if the NHS is to deliver financial balance in 2010-11.
Chairman, All Wales Directors of Finance