Feature / Rescue me

The NHS has been called into action to resuscitate the wider economy, but can it make a difference, asks Seamus Ward

Last month, primary care trust chief executives received a letter from the Department of Health asking them to consider how they could reach out to individuals in their communities to support their wellbeing in these times of economic hardship.

It suggested they adopt an idea developed by NHS Bristol, which had produced a leaflet providing advice on how to stay healthy and remain positive in these difficult times. It is a practical step that could help avoid the need for greater intervention at a later stage, but it also demonstrates that the health service’s role in this recession will not be limited to debates about its share of public spending.

It has become clear that the health service’s clout as the employer of more than a million staff and its budget of £100bn will be deployed in the battle to stimulate the economy.

Since last October health service bodies in England have been urged to work towards paying their invoices to local non-NHS suppliers within 10 days, rather than the traditional 95% within 30 days. November’s pre-Budget report promised to bring forward planned capital expenditure, while last month’s Budget included measures to target more public sector recruitment at the unemployed.

The Budget announced there would be funding for local authorities and partners (presumably including the NHS) to take forward the creation of 100,000 new jobs in ‘socially useful activity’. It also said that the public sector would ensure that 25% of its external recruitment was targeted at individuals without a job.

The request to pay invoices within 10 days – and this is still a request; the NHS will continue to be assessed on the 30-day target – was the first hint that the government believed the NHS could make a difference.

Payment effort

Following the prime minister’s call for government departments to pay suppliers more quickly, NHS chief executive David Nicholson wrote to trusts asking them to move as close as possible to the 10-day requirement wherever practical. Monitor executive chairman Bill Moyes asked foundation trusts to do the same.

While some finance directors have told Healthcare Finance that it is difficult enough to hit the 30-day payment target, others point to the hit they will have to take in terms of receiving reduced interest payments at a time when interest rates are already being cut.

Board papers from North Tees and Hartlepool NHS Foundation Trust in February noted that it had generated £143,000 less interest than plan in the year to January as a result of more prompt payment of suppliers and interest rate cuts, yet the trust was still trying to achieve 10-day payment.

Meanwhile, at month 10 Gloucestershire PCT had paid 54% of non-NHS invoices by volume within the 10-day goal and East of England SHA reported 72% by volume compliance at month 11.

At Wiltshire PCT, whose 10-day performance stood at 55.9% by volume for non-NHS creditors at month 11, finance director Charlotte Moar says the PCT will continue to work to improve this. She recognises the importance of cash flow to supporting suppliers.

‘The NHS is a significant economic force in our community and prompt payments can make a real difference to small and medium-sized businesses,’ she says. ‘We’re examining

all our payment practices with a view to ensuring we pay our suppliers and contractors wherever possible within 10 days.’

With such a large estate, the NHS could give a fillip to the construction and related industries, even though new building through the private fiance initiative has all but ended. The chancellor acknowledged this in the pre-Budget report when he announced that £100m would be brought forward from 2010/11 into 2009/10 to advance the upgrading of 600 GP surgeries to training practices. The funding

has been targeted at areas with historically lower numbers of general practitioners.

The targeted areas have now been identified, with allocations made to PCTs this month and work at GP practices due to start early summer.

The difference capital projects can make can be seen in Scotland at the new £300m Forth Valley Acute Hospital, which is to take its first patients next year. NHS Forth Valley placed a strong emphasis on local procurement, with £40m (60%) of sub-contracts going to firms within a 30-mile radius of the site. More than 40 apprenticeships have been created and 80% of staff have been employed from within 30 miles of the project. When open, it will employ 3,500 people.

Other parts of the NHS, including foundation trusts, which have greater freedom to implement capital spending, appear to be having more difficulty. Monitor’s report of foundation trusts’ quarter three performance notes a slippage in capital spending of £267m. One finance director suggests the trusts are concerned about committing to the revenue costs of capital expenditure when the future is uncertain. Another says a capital charge holiday of 18 months or two years might reduce slippage.

A Monitor spokesman acknowledges there has been a slippage of capital expenditure against planned levels of about 25% in the nine months to date but insists it is consistent with previous years (23% at Q3 in 2007/08). 

He adds: ‘One interpretation of this is that while trusts may include in their plans a range of potential investments, which in total significantly exceed depreciation charges, in practice for a variety of reasons these plans do not get executed in the timescales envisaged.

‘The consistent profile of variances against plans would suggest that in the nine months to 31 December 2008, the worsening in the economic climate or uncertainty as to commissioner intentions has not yet had a material impact on actual capital investment. It remains to be seen what impact these may have over the coming months, always accepting that there is likely to be some lag in any reductions or increases in actual capital expenditure being committed and incurred.’

Some capital spending is being brought forward and the faster payments will make a difference to suppliers’ liquidity. But some say it is merely tinkering around the edges. King’s Fund chief economist John Appleby says that despite its economic importance, it is difficult to see how the NHS can have a huge impact.

‘Look at the idea that the public sector could bring forward £3bn in capital projects to try to stimulate or keep things going in the building industry. The NHS contribution to that is £100m in GP surgeries. It’s not huge. You can’t conjure projects out of thin air.’

He adds that any capital project brought forward would have to be something already in the pipeline. Even then, it is not simply a case of bringing them forward. Various procedural stages have to be passed first.

He believes foundation trusts are being cautious in not spending on capital because of the revenue cost of capital and the uncertainty over funding beyond 2010/11, when even the most optimistic accept funding growth will be minimal. The same economic conditions that are making the government urge the NHS to invest are also encouraging health service organisations to keep money in their pockets.

‘NHS spending power is £100bn plus and in terms of generating economic activity that’s pretty significant – it’s about 8% to 9% of GDP and it’s a big employer. But I’m not sure there’s an awful lot more it can do,’ Mr Appleby adds.

‘After a 30% increase, employment growth in the NHS has levelled off. I wouldn’t expect the NHS to take on more staff at a time when it is going to be under pressure to generate significant productivity and efficiency savings.’

In the wake of last month’s Budget, David Nicholson wrote once again to the NHS. ‘The role of the NHS in the downturn is not limited to providing value for money and we are well placed to help the country through the downturn and to act as an important driver of recovery across the country,’ he said, listing four key areas where the NHS must play a role.

It should be the provider of comprehensive care, free at the point of need, an investor that contributes to the wider economy, an innovator and a driver of efficiency. The unexpected consequence of the global economic downturn for the NHS, it seems, is that it is no longer enough for the health service to provide high quality care.

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