Health economist and policy commentator Professor Nick Bosanquet of Imperial College, who chairs Volterra Health, has for some time warned publicly that the NHS faces a cash crisis on 1 November 2011.

He discusses the current economic issues and implications with Health Policy Insight editor Andy Cowper.

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Health Policy Insight: How do you think The Bosanquet Hypothesis (of the NHS running out of money on 1 November 2011) is progressing?

Nick Bosanquet: It’s happening faster than I’d anticipated. Things are now very serious.

There’s also a sinister factor of emerging politicisation at local level – which means yet more provider power.

HPI: What’s the obvious example of that local politicisation?

NB: The Chase Farm situation in particular, and way that the very sensible London reorganisation has been blocked for political reasons.

HPI: But the London reorganisation was first halted by the last government?

NB: Not on the hospital side. I mean, yes, it was shelved more than blocked by the last government.

HPI: But shelving or deferring is the long-time story of aspiring reorganisations of healthcare in London!

NB: What’s missing is any drive to get a better service for desperately sick patients.

HPI: Do you think there is a serious lack of good service in London?

NB: Variability of healthcare quality is probably greater in London and the south-east than any other part of the country. The DH study of one year survival rates for colorectal and lung cancer showed that the one-year survival rates were better in Liverpool than in many parts of London and the South East. London also scored badly on communication with patients..

Some of the big London trusts (including, sadly, Imperial) came very low down in terms of patient communication in another big survey of patient communications. By contrast, Doncaster and Bassetlaw issued a press release which praised their better communications.

There are several problems which are going to make the ‘Halloween shock’ worse. One is not faced up to the basic job in improving financial management.

Secondly, there’s the NHS’s great North-South divide. Staffing problems are already getting much worse in south, due to a combination of freezing public sector pay when we already know that public sector NHS pay in the south is too low to retain staff for lifetime careers. Now claiming can eliminate all agency staff. Which of course more pressure on remaining FT staff, who have their pay frozen unless they’re earning under £21,000.

That means freezing middle managers’ pay for several years when in the south, living costs are likely to rise by 20%, so that’ll be reducing real pay of NHS staff in the south by 20% at least when we know it was already too low; even at the peak. And middle managers are crucial to changing care for the better.

The North has more stable teams, with longer experience. Those are often associated with better outcomes as Professor Carol Propper’s studies have shown. It’s notable that Carol Propper used to be a supporter of NHS monopoly, but the weight of evidence changed her mind to what I think we should all pursue: pluralism rather than competition.

Monopoly + politicisation = log-jam + provider domination.

HPI: Mark Britnell's recent HSJ piece sought to revisit the method of tax-funding the NHS: is this a highly pertinent issue now?

NB: No. But we’re introducing more mixed funding covertly, via personal budgets and shifting surpluses to social care.

HPI: What do you currently see as the most pertinent issues?

NB: More financial management and attention to outcomes. The NHS is spending a vast amount of money, yet the sense is of a financial pygmy.

We need flexibility to move the NHS to be a lower-cost system. It always was, but now it’s a high-cost system. The past decade of funding growth means that in effect, we’re treating the same patients we always were at over twice the cost. With better financial management, there must be scope to probe marginal cost and shift care to lower-cost areas.

HPI: You’ve long argued that the NHS needs better financial management, but what would it look like in practice?

NB: It would start with balance sheets at service level.

HPI: Doesn’t service line reporting (SLR) deliver that already?

NB: That’s far too complicated: it’s trying to re-invent the wheel! We already have a very clear and simply system used by all organisations bar the NHS, which is a budget presenting figures on costs and finding and income. and living within those.

Every organisation has that – except the NHS.

The second step is to make clinicians responsible for delivering given quality at lower cost, which means searching out high marginal cost and low marginal benefit – accounts force you to do that.

HPI: Has management consultancy delivered any significant benefits to the NHS?

NB: It could deliver benefits if asked the right question, but it’as mainly been used as an exercise in escapism.

The other reason it’s very important to improve financial management is the new opportunities for investment. There’s a new healthcare model out there; starting with prevention and moving through early diagnosis to ambulatory care and care programmes. To deliver this needs better communication, and care integration – but we’re deluding ourselves that it can be tacked on to the old model and there will be some magic-morphism by which the old model becomes the new one.

We need to face tough questions on the investment required to achieve the new model, which can only come from transferring the funding sources and staff from old model.

The NHS needs the same transition the British economy went through in the 1980s and 90s.

HPI: Which means moving care out of buildings to which people seem emotionally attached, at a time when there’s no money for double-running … so how do we do that?

NB: Historically, we’ve seen changes in the run-down of inpatient psychiatric services, which could provide lessons of similar redesign in acute services. In the last 10 years, we’ve seen poorer financial management in the NHS.

HPI: Really?

NB: Yes, people have continually solved problems by spending more. Not only that, we’ve gotten more addicted to acute treatment, while others use hospital care far less. Sweden has half the level of acute admissions per head; in the past decade, ours increased 38%.

Much of this is our ‘revolving door admission’, and the financial incentives to treat more in acute settings. The system has not delivered productivity, but it’s delivered activity in spades. Which produces rhapsodic hymns of praise in politicians …

Another reason to do better financial management is to give ourselves a real evidence base for our choices on outsourcing and pluralism. If we had done that, we could see that the gains in reduced waiting times could have been delivered for £20 billion less than has happened.

HPI: Is that £20 billion the McKinsey report figure?

NB:No, it’s based on the experience with long-term care, where costs of Local Authority care are 80% higher than private care. Showing the force of competition and contracting.

The troubles with Southern Cross are serious indeed, but there are a number of caring and competent companies which could take over any homes threatened with closure. There are many homes offering care of good quality, and access is much more open than it was in the old monopoly days.

But we need to be realistic – to develop new model and benefit from that within budgets. And we need much more powerful pressures to reduce unit costs.

HPI: Carol Propper’s work also makes pertinent observations on unit costs and competition and safety …

NB: Quite a bit of Propper’s work is based on US studies, and on the fiction of price competition in 1990s. I don’t accept that there was; I don’t accept that 1990s evidence is necessarily relevant to the much bigger problem we have now. And in comparison with the 1990s, we now have better quality measures, so we can be alert to the Propper problem if it starts to emerge.

How else can our high-cost system get the financial and management ability and speed of response to deliver new services without pluralism?

HPI: Do you see anything in the current reforms that will help deliver on any of this?

NB: I’d favour a stronger voice for GPs in commissioning, but together with trusts and above all, with patient groups. Patient groups been very positive, and many GPs do have more sense of financial value, than you’ll now find in the hospital system. (Though GPs deal with two 0s rather than 4 or 5!).

In the last year, we’ve been going backwards – the local ability to take decisions is reducing with the changes, and central illusions about great schemes for reforms.

There’s a complete divorce, or disconnect, between the Whitehall-Westminster agenda and what is actually happening at local service level.

HPI: How long can that be ignored?

NB: Quite a long time? When the money runs out, there’s going to be a new round of financial problems, but that will simply lead to new pressure for bail-out as NHS has bail-out culture.

The smart money (AKA Matthew Swindells) thinks that thanks to top-slicing, there will be enough to bail out this year - and that the real problems come on 1 November next year.

But the likely effect will be of politicians and governments trying to stabilise things to next election.

HPI: Which isn’t too far away.

NB: There’s a tick-tick-tick, big crisis coming after the next election when it will become clear that there’s not enough funding to meet the level of demand and activity generated by extra NHS staff. We now have twice as many consultants as 15 years ago.

HPI: Which is partly to do with a changing gender balance?

NB: True. I remember once working for team at Leeds General Infirmary, where the chair (a blunt Yorkshire businessman) asked me, ‘What do consultants cost?’ So expecting a bouquet, I quoted figures from the review body report, and he said ‘No, nonsense, take total the budget and divide it by the number of consultants!’

And on that basis, the answer at that time was £1 million a year, as consultants generate activity.

Now the NHS has twice as many, yet needs to reduce costs. So we have to get them managing to provide a better service with a declining budget and declining staff contribution next few years.

The NHS is really suffering from the ‘Blair System’ of manpower planning, which was to announce targets for thousands of extra trained staff. That meant entry standards had to be lowered, and standards of training fell as you can’t train a trainer overnight; people who’d been inadequately trained moved into negative work culture and soon started leaving.

So a combination of retirement and a higher quit rate of new staff will leave the NHS short of dedicated personnel, especially in 24/ 7 services.

So we have to face up to facts: the age of plenty and extra funding is over.

HPI: And to understand that the 2000s was an exceptional decade?

NB: Yes, that won’t come back. Even the 3-4% real annual growth before that could be gone. We don’t have as many younger taxpayers, and commitments to benefits for golden oldies, so there’s no room for special NHS funding.

The New Zealand Health Minister Tony Ryall gave a talk here recently about his experiences of getting clinicians involved in scenario-planning for fixed funding but 100% demand rise, and he found that clinicians there were wiling to accept this as real. The sooner we do the same thing here, the better

HPI: Can you think of NHS situations where clinicians have driven and sustained that kind of change?

NB: Yes, the coronary heart disease National Service Framework was mainly clinician-driven, led by Roger Boyle, and had very positive results that were not about more acute treatment; in fact, they led to more day case treatment as well as use of statins. That started from a local East Kent initiative, and was developed mainly by clinicians, with little attention from ministers except when later taking the credit for a 40% drop in mortality

Another example, showing the power of information, is gastric cancer surgery. The Information Centre says that the death rate has fallen from 14% to 4% over the last 10 years, through better informatics. This is not done by politicians’ edict: it’s done by per group comparisons and professional actions. I don’t think any minister is probably aware of this happening.

HPI: Are you reasonably optimistic about the future?

NB: Very - if we unleash the forces of local initiative - but it will have to be within a financial framework that allows people to press to get value in a more consistent way. We are keeping clinicians from the facts about need to get value.

I’ve been working with a big central London trust on their new cancer centre, and was recently at a briefing on new IT and diagnostics. The kit is all very fine stuff, but what was not mentioned was money - giving the impression that these joint PET / MRI scans could be had in unlimited amounts.

Yet staff capability and funding pressures are likely to make the need for rationing resurface. I’m very optimistic on the new model and the international evidence for it.

New Zealand’s made real progress to lower-cost, more economical care. The problem here is that we’re not levelling with professionals and public, nor bringing interests of consumers to the fore.

The NHS has become more provider-dominated with a more extreme culture of ‘nanny knows best; trust doctors’ than in the past. Once, politicians could in the past run for office asking for 'a doctor's mandate' for radical surgery. Now in general, they can’t do that. but in NHS policymaking, the politician's call for 'a doctor's mandate' somehow seems to survive. The 1931 government asked for a doctor’s mandate.

Politicians and all of us must contribute to a new, more adult dialogue on the real issues and choice - and yes, rationing in NHS. At present, NHS is like the social security system in the US: it’s the ‘third rail’ of politics, and no-one can say anything other than it’s wonderful and free.

Now we have to face up to the changes required to raise value, especially for patients with serious long-term conditions illness. The underlying change is that to some extent, we’ve won the battle of raising life expectancy, but many survivors are in poor health, so there’s both a high cost of care and a poor quality of life.

A decade or so ago, there were only 200-300 people alive with end-stage renal failure, and they were not alive for long or in good-quality of life, as dialysis then was pretty unpleasant. Now there are about 90,000 people alive on dialysis or transplanted. And of course that’s good, and their quality of life is now quite good, but no doubt some have much morbidity.

Another group is that of people who suffer from pressure sores. NICE guidance about pressure sores doesn’t mention pain, or fears of loss of dignity, so there are problems with patient perspective.

But back to my reasons to be cheerful: the positives are that there are a lot of bright people in the NHS – we have to make sure to give them the power to develop better services which means giving them more financial and value responsibility.