The NHS in Wales could face a £700m 'black hole' in its finances

The Welsh NHS needs to deliver at least £700m of efficiency savings to close the projected funding gap by 2019-20, a leading think tank has warned.

The Health Foundation carried out an independent study, called The Path to Sustainability, on the funding projections for the NHS in Wales to 2019-20 and 2030-31.

It found that without any action to reduce pressures or increase efficiency, NHS spending would need to rise by 3.2% a year to keep pace with the growing demand on services.

It has predicted that maintaining the current range and quality of services would see spending rise from £6.5bn in 2015-16 to £10.4bn in 2030-31.

The projected spending pressures on the Welsh NHS

The Health Foundation says if NHS Wales funding continues to rise by an average of 0.7% a year until 2019-20, there would be a funding gap of £700m – more than 10% of this year’s budget.

Nearly £300m of this gap could be closed by the UK Government’s 1% cap on annual increases in public sector pay.

But the charity says NHS leaders will need to manage the risk that continued pay restraint will damage morale and hinder recruitment and retention of NHS staff.

They claim the remainder could be met by additional efficiency savings of 1.5% a year, which would be above the current trend of 1%.

But Anita Charlesworth, director of research and economics at the Health Foundation, claims if the health service in Wales can navigate this “daunting” and “tough” period until 2019-20, the long-term outlook could be optimistic.

Anita Charlesworth, director of research and economics at the Health Foundation

She said: “The next few years will be tough for the NHS in Wales. Immediate and sustained action is needed to protect patient care, but long-term sustainability is possible.

“Tackling the urgent funding pressures facing the Welsh NHS requires an unrelenting focus on improving efficiency.

“Securing its long-term future also requires increased investment and continued reform so the service meets the changing needs of an ageing population.

“But the health service is not an island – ensuring people can access high quality social care will also be vital to the future of the NHS in Wales.”

In Wales, the health and social services budget accounts for nearly half (48%) of the total devolved budget of the Welsh Government.

But the Health Foundation claims the Welsh NHS is currently in “the most financially challenging period in its history”, mainly down to its lowest ever growth in funding.

Since 2010, the annual rise in funding has averaged at 0.6% – a “far cry” from the 6% the UK NHS received between 1997-98 and 2010-11.

Demand and cost pressures on the NHS in Wales, and the rest of the UK, are also rising year-on-year partly due to an ageing population with a higher prevalence of multiple chronic conditions.

The cost of hospital admissions for chronic conditions

And due to major recruitment and retention issues within many levels of the NHS, there has been an “over-reliance” on more expensive agency staff to plug gaps in rotas.

According to figures, the spend on agency staff increased by 60% in just 12 months between 2014-15 and 2015-16.

As a consequence, the NHS in Wales overspent its budget by £50m in 2015-16 despite five health boards managing a net surplus in the year.

The report states: “The NHS in Wales would need to achieve a greater level of efficiency growth of the next few years to avoid undermining the long-term sustainability of the NHS.

“Growth in efficiency in line with the long-run average of 1% a year would still leave a funding gap of around £450 a year in 2019-20.”

The Health Foundation pointed out a number of “opportunities” for closing the funding gap, including slowing the trend for hospital treatment by providing more care in communities and primary care facilities.

The report also looked at the financial savings of the prudent healthcare message which focuses on delivering services in a “cautious and wise way based on forethought, vigilance and careful budgeting”.

The effect of prudent healthcare on spending

The Healthcare Foundation claims an additional £90m of savings could be made by 2019/20 if the reduction in hospital pressures on hospital services are realised.

The report also looks at the cost pressures of adult social care, in which demand is expected to increase by around 4.1% a year up until 2030-31.

The report states: “This will requite the [social care] budget to almost double to £2.3bn by 2030-31 to match demand.”

It also warns that the implications for leaving the European Union are likely to be negative on the NHS budget.

The report adds: “The Health Foundation’s rcent briefing suggests following the referendum, the budget for the NHS in England could drop by between £2.8bn and £4.6bn by 2019/20, depending on decisions by trade agreements with the EU.

“The equivalent impact for the Welsh budget would be a reduction of around £150m by 2019-20 if the UK joins the European Economic Area.

“If instead the UK uses World Trade Organisation trading rules, the Welsh budget for 2019-20 could be as much as £350m lower than currently projected.”

It warns that the UK would need to increase taxation and make greater reductions in public spend in other areas.

In summary, the charity says policymakers and NHS leaders must take sustained action to secure the long-term future of the service.

They have called on them to:

  • Increase funding by at least 2.2% each year from 2019-20 until 2030-31
  • Develop a strong workforce policy that ensures adequate numbers of high quality and motivated staff are retained and recruited, despite continued pay restraint
  • Investing adequately in a range of public services, particularly social care
  • Continuing to make efficiencies and reform healthcare to meet the population’s changing and growing needs

Responding to the report Vanessa Young, director of the Welsh NHS Confederation, said the report presents a “cautiously optimistic long-term outlook” for NHS finances.

Vanessa Young, director of the Welsh NHS Confederation

She said: “It suggests that a sustainable publicly-funded health service is an achievable goal, but it’s not without considerable challenges for Government, the NHS and the public.

“The NHS will continue to work hard to drive efficiency but it’s important to recognise that significant savings have been made in the last few years, and this becomes harder and harder to maintain each year.

“Our members are also facing considerable recruitment and retention challenges across the NHS and there is a risk that the assumptions around pay may not be deliverable.

“Today’s report also looks at maintaining current performance, but there is already unmet demand in the system and advances in technology and medicine will only add to the financial pressure.

“There is a need to change the way we deliver care to help meet demand and improve patient outcomes.

“This requires upfront investment, which is why we have called for transformation funding, so the NHS can establish new ways of working which deliver more efficiency and better care for patients.

“We welcome the report’s recognition of the role of other public services, particularly social care, in supporting the health and wellbeing of the population. Our members are concerned about the pressures on adult social care and we would support additional investment in these services.

“While the report is fairly optimistic about what is achievable and the level of funding in the long-term, we will have a clearer picture of the short-term when the details of the draft budget are published next week.”

A Welsh Government spokesperson said: “We’re working to ensure our NHS is financially sustainable for the future and welcome the optimism in today’s report.

“Since 2014-15, we’ve invested an extra £809m in recurrent revenue funding in the NHS, this includes the additional £260m for the NHS in 2016-17.

“The health budget has increased by more than 14% since 2013-14 on a recurrent basis, which is equivalent to an extra £262 being spent on health for every person in Wales.

“Despite the extra funding we’re putting into our health service, we know there are still pressures facing our NHS.

“That’s why it’s also really important that the UK Government takes action in the Autumn Statement to boost public finances rather than make further cuts to spending.”

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