National Health Services - Essay Example

Contemporary issues in public sector finance Table of Contents Introduction National Health Services or NHS is the healthcare system in England, funded by the public. NHS offers healthcare facilities to individuals who are normally resident in the country. Its services include ophthalmology, dentistry, primary care and in-patient care. Most of the services provided by NHS are free. It is funded by the money raised through taxes. The payments made under National Insurance are also utilized for the funding of its health services. In view of the recent budget cuts announced by the government there will be an impact on taxation. This will lower the fund availability of the NHS as it is mainly dependent on taxation for discharging free health services. Therefore it is important that it identifies alternative sources of funding or it will face the problem of scarce resources in the future. Funding of NHS NHS receives a significant chunk of the total budget allocated for the Department of Health. Out of the £94 billion amount allocated for this Department the NHS received nearly £92.5 billion in the year 2008-09. The Primary Care Trusts (PCTs) are the principal fund holders of NHS and they distribute funds to the system on a contract basis or at a tariff agreed upon. . NHS applies charges on prescriptions of adults. Apart from this, they also charge money for dentistry and optician services. Most of the costs of the system are funded by taxes, implying that the contributions from UK taxpayers comprise most of its funding. NHS receives money from dentistry as well as optical services. The dentistry charges on examination at NHS as on April 2009 was £16.50, £45.60 for extraction or filling and £198 was charged for other complex procedures. NHS derives additional revenue from charges made for car parking. The charities of the system hold assets of more than £2 billion and have an annual income of more than £300 million. Funds raised through charities are mainly used for buying medical equipments, conducting medical research, improving environmental conditions and for providing increased comfort to the patients. Alternatives of funding Keeping In view the restraints applied on public spending it becomes difficult for the government to allocate funds to the organizations which already have an access to millions of donations. Charitable funds are a good substitute for taxation funds (Times Online, 2009). Owing to the cut in the rate of taxation, the financial pressure on NHS will keep on mounting. Though taxation is the most cost effective way of providing low cost services it is important that the system makes use of alternative ways, for funding the health services to the public. The adoption of self-care facilities is another way of lowering the financial burden on NHS. This suggests that the patients should be encouraged to take care of themselves at home rather than visiting the local hospitals. Moreover the use of advanced technology can facilitate reduction of costs and improve the efficiency of the services rendered. For example, if the man-power used for rendering services can be substituted by machines then this will lower the salaries and wage bill of the hospitals. The use of better technology will not only improve the efficiency of operations but will also reduce costs. A radical change in the composition of the workforce will help to extend the role of the nursing staff and break the professional boundaries. Cost- effective treatments can be used to boost productivity. The provision of extra facilities like television, telephone must be stopped so that the money saved on these expenses can be used for other medical facilities. This will also help in preventing diversion of funds for unnecessary causes. To reduce the overall bill of NHS, the patients can be asked to pay for the non-clinical services, Exemptions can be provided for the treatment that is clinically necessary but this can only be possible if the unnecessary expenses are curbed. The money thus saved on non –clinical services can be used to extend clinical services without impacting the resources of NHS. (BBC News, n.d.). A combination of reforms have been suggested for alternative funding options for NHS- Private Insurance- The government can encourage people to pay for their health care facilities to alleviate the financial pressure on NHS. Charges- New charges can be introduced by the government to make the people responsible in their use of the health services besides raising the revenue for NHS. Social Insurance- The government can adopt the German or French system of funding the health services. Under these systems, the funds are mainly raised from the employees and employers and not from the general public. Rationing of services- The government can allocate the services to selected procedures. The government can offer tax relief to individuals maintaining provisions for their healthcare facilities. This means that tax incentives can be provided to employers or individuals making payments for private medical insurance. Implications and risks of alternative modes of funding The system of private medical insurance shifts the payment burden from the wealthy, young and healthy to the poor, aged and unhealthy. The cost of availing private health insurance increases with the degree of sickness and age of the person. It often becomes difficult to obtain private insurance by people beyond a specific age and those suffering from chronic diseases. Giving tax breaks on private health insurance is regressive in nature; because it offers subsidies to the people who are well-off and little to low benefit to those who do not fall within this bracket. This view has been inferred from the research conducted on health related costs across the various income groups in America and Europe. It revealed that the countries like US and Switzerland which rely on the system of private financing exhibit the most regressive structure. The countries relying on the social insurance come second to the above countries in terms of regressive structure. But the countries that use tax finance for funding the health services are considered to be the least regressive. Under this mode of funding the people are made to pay according to their income. An individual with an income of £1 million a year has a higher paying capacity as compared to a person who earns less than this amount. The extra money paid by him can be used to extend the clinical services to the poor. Moreover, allowing tax breaks on private medical insurance lowers the tax contributions of the wealthy class. As a result of the tax incentives their tax payment is reduced and this adds to the financial burden of providing free healthcare services to the needy (Department of Health, n.d.). The use of charitable donations as substitutes for tax funding is not free from limitations. This amounts to money raised for specific ventures being lumped for the general budgets of NHS. This can be viewed as nationalization of public donations and gifts. It will adversely impact the public trust in the charities of NHS. The inclusion of the charitable funds in the consolidated accounts of “NHS bodies” can add to the risk of misappropriation of fund. This will result in significant losses to the beneficiaries and tarnish the image of the public bodies. Budget cuts by the government Andy Burnham the health secretary announced a reduction of £4.35 billion which is more than one-third of the total savings of £11 billion desired by the government. This will comprise of £1.5 billion of savings from procurement costs, £100 million from IT related programmes, £60 million from reduced energy consumption and £555 million by lowering staff absence. The other cuts that have been announced include £1.1 billion for costs related to schools, children and families, £431 million from “Ministry of Justice” leading to a closure of nearly 20 magistrate’s courts and £700 million from the Defence Ministry budget. (Stratton, 2010). Impact of budget cuts Notions prevail, that the effectiveness and quality of NHS will be affected in case of cuts in public spending. Paul Henderson the CEO of 21C is of the opinion that owing to the budget cuts of NHS, it is important that the providers and commissioners make effective decisions on the provisioning of health services. The NHS will require in-depth data from the various departments, including finance, operations and HR, for all the information (The British Journal of Healthcare Computing and Information Management, 2010). Due to the recession the NHS will face a budget shortfall of £15 billion. It will have to take tough decisions relating to payments or else it will lead to poor facilities and higher costs. The system is facing budget cuts putting an end to the good spending days in 2011. Lower budget rise coupled with the impact of recession has lead to a shortfall of £15 billion for NHS. This has raised serious concerns and requires immediate actions if the health care services are to be made free. The Confederation representing the NHS organizations has warned of its earlier tactics of a cut on training and reducing the budgets across the services as this can prove counter-productive. As per the report of the Confederation there will be significant changes in the patient services. The Chief Executive of the Confederation, Steve Barnett is of the view that with limited availability of cash from 2011, NHS has to make tough decisions about the funding of programmes, rewarding staff and reorganization of services. A failure in this respect can result in repetition of previous mistakes and create fund shortages which will translate to a cut across the board, leading to lengthening of the waiting lists, fall in standards and dissatisfaction about the service quality among the patients (Smith, 2009). To mitigate this crisis NHS has to work towards improving the quality by enhancing its efficiency. An approach based on innovation and quality is required to make the best use of resources. San Thomas, NHS Employers director, warned of the angers that would erupt in case of job cuts. It is clear to the bodies of the NHS that a cuts and slash are not the remedies for tackling the present situation. The only thing that is required now is the development of talent across all the levels. A serious challenge that the system will face is to retain the higher level managers during the tough times. Their services are vital as they guide the health organizations through the ‘spending cuts’. In the last year the public sector was the preferred choice for many people in the private sector but situations are expected to be reverse now. The period following 2011 appears to be very challenging. As per the Chancellor, there will be a growth of 0.7 percent in the amount of public spending over the next few years. This amount is not expected to change in the forthcoming years. The findings of Institute of Fiscal Studies show that this could lead to a reduction of -2.3 percent in the resource availability to the government departments. This suggests very moderate or no cash hike in the spending of NHS for the next CSR period and even beyond. The real effects will depend on the demand levels, payment behaviour, price inflation and reduction of NHS’s share. The demand is expected to move up due to ageing, impact of increasing diseases due to extended life span, disturbed mental health and over consumption of alcohol in areas affected by recession. Even in case of price deflation, the NHS may have to face inflationary pressure. This is mostly because the rise in the health prices is faster as compared to other commodities in the economy. There will be an increased pressure of debt servicing on public spending, leaving very little for the social care and NHS. However there will be a rise in the other prices mainly energy when the economy recovers. The cost of purchasing new drugs and equipments will create cost pressures of nearly 0.6 percent. There will be a nominal increase of only 0.5 percent in the employers’ contribution from national insurance. Due to limited cash increase NHS will have to make a plan for a fall in the funding by approximately 2.5 to 3 percent annually. This means a cut of anywhere between £8 to £10 billion over the next period and approximately £15 billion in the coming five years will take place. This would mean lesser staff and the required level of savings may be much higher. According to David Nicholson, the Chief Executive of NHS this is approximately £20 billion in the next period. This will be applicable to other expenditures of the system such as GP and dentistry, primary cares services and other areas that had hitherto been exempted. This amount of funding will enable the NHS to adjust for limited demand increase as well as new drug adoption. Various questions have been raised about the capacity of the management of NHS in dealing with the situation. Key Principles in facing the challenge The underlying principle of NHS is that the wealthy and well-off support the needy. Improvements in the long term cannot be compromised for expediency in the short term For improving efficiency improvements in the quality should be brought about through redesigning and innovation. Response to challenge- The infrastructure and management costs will require a scrutiny and the resources made available to the clinical decisions will remain committed. There will be a focus on process improvement and quality; and use of innovative practices. The redesigning of the clinical services is important in dealing with the situation but this will require upfront investment. For instance an improvement in service and quality design will reduce rework, error, overlap and duplication. A factor that adds to the costs is the unnecessary costs and the solution to this is adding mechanisms. (NHS Confederation, 2006). Leadership skills According to the Chief Executive Andy Painton at South Dawns, leadership is important for the process of integration. But the more serious concern is to improve quality and lower costs. During these difficult times it is important to nurture talent as only the leaders can create an environment which is conducive to innovation. South Downs Health NHS Trust started its first programme of talent management in November last year as they realised the need of effective leadership. The employees at NHS feel that mental strength and resilience are required for making difficult decisions and initiating tough conversations. To deal with the present situation NHS will require the help and support of the NHS leaders and staff, policy makers, politicians and public (Dudman, 2009). Private Finance and NHS Various questions have been raised regarding the government policy on NHS. As per the government the initiative of private finance is a procurement policy meant for the purpose of improving efficiency. However it is argued that the high costs of procuring private finance can raise the cost of capital. This will lead to cut in workforce. The initiative of private finance is a move towards the private funding of public services. This will devise new ways and create better opportunities in satisfying the wants of the public. The main aim behind private finance initiative is to save public money and create opportunities for the private businesses. The private finance and PPP (Public-Private Partnership) will play an important role in the development of the modern infrastructure. The underinvestment has created maintenance backlog of nearly £6 billion in the universities, schools and hospitals. The alliance between the private and public sector is expected to account for nearly 14 percent of the public expenditure in the near future. The inclusion of the private sectors in delivering public services will ensure that the patients have an access to improved facilities and sophisticated technology. PPP is a global phenomenon promoted by the international financial institutions. The use of private finance for the public sector is an integral part of World Bank and International Monetary Fund’s structural programme. UK is among the first countries to adopt the recommendations of the international financial institutions for facilitating the transfer of services from the public to the private sector. In the last six years the European Commission has propagated public-private partnership and has utilized government grants to set such partnerships. In this kind of partnership the public sector takes care of funds and the private sector is in charge of delivering services. This is mainly because the private sector is known for performing efficient operations. Their managers are highly skilled and possess the requisite expertise. This kind of efficiency is often missing in the public sector. The public sector has funds but lack the required acumen in the correct application of these funds. Therefore an alliance between the public and private sector combines the funds of the public sector and expertise of the private sector. This results in the delivery of the best possible services. As the private sector can undertake risky ventures it will manage the projects more efficiently. The introduction of the new avenues of funding will reduce the burden on public debt or on taxation. Due to this the costs of investment are transferred from the society to the people who use these services (Gaffney, et al., 1999). Conclusion NHS has long been funded by the money raised through taxation. But the recent budget cuts announced by the UK government make it necessary for the system to make alternative arrangements. In view of little or no cash increase in the forthcoming years the system must keep itself ready to face the challenge. Although the NHS is flushed with charitable donations but this amount have been raised for specific uses and cannot be used for the hospital charges. The use of private finance in the public services is an important initiative in meeting the funding requirements of NHS. This will reverse the general principle of funding health expenses out of public money or that the public services should remain under the ownership of the public. Other than this the use of better equipments and cost effective techniques will assist the system in tackling the problem of limited funds. Reference BBC News. No date. The Wanless NHS report. Available at: http://news.bbc.co.uk/2/hi/health/1679521.stm [Accessed on March 25, 2010]. Department of Health. No Date. Options for funding healthcare. Available at: http://www.dh.gov.uk/en/Publicationsandstatistics/Publications/PublicationsPolicyAndGuidance/Browsable/DH_5204614 [Accessed on March 25, 2010]. Dudman, J. 2009. Talent for tough times. Available at: http://www.guardianpublic.co.uk/nhs-management-job-cuts [Accessed on March 25, 2010]. Gaffney, D. Pollock, M.A. Price, D. Shaoul, J. 1999. The politics of the private finance initiative and the new NHS. Available at: http://www.ncbi.nlm.nih.gov/pmc/articles/PMC1116335/ [Accessed on March 25, 2010]. NHS Confederation. 2006. Dealing with the downturn. Available at: http://www.nhsconfed.org/Publications/Documents/Dealing_with_the_downturn.pdf [Accessed on March 25, 2010]. Smith, R. 2009. NHS will face £15bn budget shortfall due to effects of recession managers warn. Telegraph Media Group Limited. Available at: http://www.telegraph.co.uk/health/healthnews/5485814/NHS-will-face-15bn-budget-shortfall-due-to-effects-of-recession-managers-warn.html [Accessed on March 25, 2010]. Stratton, A. 2010. Budget 2010 How state spending will be cut. Available at: http://www.guardian.co.uk/uk/2010/mar/24/budget-2010-whitehall-public-sector-cuts [Accessed on March 25, 2010]. The British Journal of Healthcare Computing and Information Management. 2010. Budget cuts affect public confidence in NHS. Available at: http://www.bjhcim.co.uk/news/2010/n1003016.htm [Accessed on March 25, 2010]. Times Online. 2009. Donations to hospital charities could become part of NHS budget. Available at: http://www.timesonline.co.uk/tol/news/uk/health/article6969940.ece [Accessed on March 25, 2010]. Bibliography The Scottish Government. 2010. Public sector budget cuts. Available at: http://www.scotland.gov.uk/News/Releases/2010/01/29105732 Read More