JANUARY

ENGLAND
How are costs contained?
Rather than using patient cost-sharing or imposing direct constraints on supply, costs in the NHS are
constrained by a global budget that cannot be exceeded. NHS budgets are set at the national level, usually
on a three-year cycle. CCGs are allocated funds by NHS England, which closely monitors their financial
performance to prevent overspending. They are expected to achieve a balanced budget each year.
The current economic situation has resulted in a largely flat NHS budget against a backdrop of rising demand.
Between March 2010 and March 2015, the NHS budget rose by between 0.6 percent and 0.9 percent (in real
terms), versus the 5.6 percent growth between 1996–97 and 2009–10 (King’s Fund, 2015b). NHS England
(2014a) estimated that the gap between rising demand and a continuation of this minimal increase in funding
would be equivalent to GBP30 billion (USD42.4 billion) per year by 2020–21, assuming no additional
efficiencies, but also that efficiencies equivalent to 2 percent to 3 percent of the annual budget are possible,
versus a historic rate of 0.8 percent.
Although some of the savings targets have been met in the past five years, the financial pressure on the NHS
is being associated with some deterioration in quality of care—notably waiting time targets (Nuffield Trust and
Health Foundation, 2015).
Cost-containment strategies to date include freezing staff pay increases, supporting increased use of generic
drugs, reducing DRG payments for hospital activity, managing demand, and reducing administration costs
(King’s Fund, 2015a). There are a number of tools for local purchasers to maximize value by addressing
unwarranted variations in utilization and clinical practice, provided by the government-funded “Rightcare”
program. Local purchasers can also run competitive tenders for certain services.
What major innovations and reforms have been introduced?
In October 2014, NHS bodies, led by NHS England, published the Five Year Forward View, which sets out the
challenges facing the NHS and a series of strategies to address them (NHS England, 2014a). These included
setting up a number of pilot programs across England to test new models of care known as “vanguards.” To
date there are 37 vanguard sites, which focus on scaled-up primary care, enhanced health care in long-term
care homes, vertically integrated hospital and community care, and networks to improve emergency care. NHS
England hopes that, among other benefits, evaluations of the program will lead to better tools for identifying
those at risk of becoming high-need, high-cost patients, and to the development of capitated contracts to
incentivize providers to collaborate in the care of complex patients. The Five Year Forward View also sets out
strategies to improve health and well-being, including a diabetes prevention initiative (NHS England, 2015a).
The primary challenge facing the NHS is finding a way to redesign services and invest in prevention while at the
same time generating efficiencies without compromising service quality or access. In November 2014, the
National Audit Office reviewed the financial health of hospital providers in the NHS and warned that the trend
of increasing financial distress was unsustainable (National Audit Office, 2014). The new Conservative
government elected in May 2015 endorsed the Five Year Forward View and committed an additional GBP8
billion (USD11 billion) per year. But measured against the GBP30 billion (USD42 billion) gap identified by NHS
England, this additional funding equates to an annual savings target of GBP22 billion (USD31 billion). Moreover,
this funding will need to cover the implementation of new pledges, made in the election manifesto, to
implement full seven-day working weeks in hospitals and general practice by 2020.
The authors would like to acknowledge Anthony Harrison, the author of earlier versions of this profile.
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The Commonwealth Fund