‘Failing just enough’: a warning from NHS history

The displeasure felt by the biggest hospitals over tariff changes was met by much of the service with a touch of schadenfreude. “Welcome to our world” is how many retorted. NHS England has chosen to divert more funding to primary care and mental health, and the big and specialist hospitals were deemed most able to bear the pain.

‘The spending commitments made by the various political parties will barely touch the sides’

So far, so fair, many may conclude, but the decision will have profound implications for the NHS’s future and its internal dynamics.

The NHS provider sector has operated in surplus for most of the past decade. Even as financial austerity drove the sector into deficit, the NHS’s leading hospital trusts stayed proudly in the black. But now some iconic teaching trusts are predicting deficits for this year; 2015-16 will see many of their peers follow suit as the acute sector sinks deeper into the red.

Sector-wide deficit

A sector-wide deficit to the order of £2bn in 2015-16 is not unrealistic. The spending commitments made by the various political parties will barely touch the sides.

Imagine the scenario emerging in September: a minority government struggling to assert itself, a financial hurricane ripping holes in hospital accounts, England’s leading teaching hospitals at loggerheads with the centre, and growing talk of restricted care for the sickest patients. Is this an environment in which vanguard new care models will be allowed to quietly prove themselves – or one in which they are given unrealistic timetables to deliver or are blown off course by the impending sense of crisis?

That, however, might not be the most pernicious impact of the emerging situation.

The introduction of foundation trusts was hyped at launch, but over time it has helped changed the mindset of hospital leaders.

‘The DH is attempting to tighten the purse strings by insisting future bailouts must be paid back, but this may prove an empty threat’

Most successful providers have been able to generate a small surplus without central support and slowly but steadily have begun to take greater control of their own destiny. Hospital boards have aspired to match their successful peers and become more effective as a result.

For much of the lifetime of the NHS, those running hospitals knew the secret was to “fail enough”. Your financial problems needed to be sufficiently great to secure your share of the bailouts, but not so great that they might embarrass the minister.

Already acute finance directors are dusting off their begging bowls. The DH is attempting to tighten the purse strings by insisting future bailouts must be paid back, but this may prove an empty threat when large numbers of trusts default on their “loans”.

Lack of incentive

Likewise, the efficiency challenge that “independent” trusts would want to tackle as a matter of pride is now just another way to express pain. There is little incentive to tackle wicked inefficiencies when success just means a smaller deficit – other than avoiding the wrath of the centre.

The need to look up to avoid censure and secure support will increase, at the expense of looking out to local partners and the public.

‘The centre needs to drive through payment reform by the end of the year’

This will not sit well with many in hospital leadership, particularly medics. The talent pool will further diminish, while those that remain struggle in an unforgiving environment very different to the one in which they learned their trade.

None of the above, in itself, means the NHS England tariff strategy is wrong. What it does tell us is that the NHS urgently needs to deal with a range of challenges and that prioritisation is brutally hard.

What can be done? The centre, including the new government, needs to drive through payment reform by the end of the year, and take hard decisions on the centralisation of specialised services.

Local health economies need to redouble their efforts to maintain stability during this period – possibly at the expense of some of their more ambitious plans. Finally, trust boards need to hang on as hard as they can to a culture of self-determination.