t h e s u r g e o n 1 3 ( 2 0 1 5 ) 1 2 1 e1 2 6
Available online at www.sciencedirect.com
ScienceDirect The Surgeon, Journal of the Royal Colleges of Surgeons of Edinburgh and Ireland www.thesurgeon.net
Matter for Debate
How much should we spend on health care? John Appleby* The King's Fund, 11-13 Cavendish Square, London, W1G 0AN, United Kingdom
article info
abstract
Article history:
Background: For a tax-funded health service such as the NHS, how much is spent in total is a
Received 10 October 2014
crucial (and necessary) decision which precedes and determines the consumption of
Received in revised form
health care by individuals. Determining total spending in private markets is not a partic-
12 November 2014
ularly important (or necessarily interesting) issue as it is merely the sum of all the private
Accepted 15 November 2014
spending decisions of individual consumers in the market. However, economists would
Available online 10 December 2014
argue there are parallels between these (collective) public and (individual) private decisions; both involve balancing costs and benefits, and trade offs with other ways of
Keywords:
spending limited budgets.
NHS
Main findings: Economists would further suggest a decision rule to identify how much to spend
Spending
on health care (or anything else for that matter); continue increasing spending on health care
Health economics
until the next pound yields greater benefit from spending on some other, non-health, care activity. Although NICE operate a version of this decision rule when assessing the cost effectiveness of individual health technologies, its wider application to decide on total health spending (versus other beneficial uses of society's scarce resources) has prohibitive data implications and requires agreement on the value of the benefits side of the calculation. Conclusions: Given that a decision has to be made however, in practice the decision process falls within the political sphere, informed, up to a point, by data on the determinants of spending (eg population projections), international benchmarking and the exigencies of prevailing macroeconomic circumstances. © 2014 Royal College of Surgeons of Edinburgh (Scottish charity number SC005317) and Royal College of Surgeons in Ireland. Published by Elsevier Ltd. All rights reserved.
Introduction With news of growing financial distress emerging from NHS organisations around the UK and with health care set to be a central theme of next year's general election campaign, it's worth asking a question the then Chancellor Gordon Brown posed Derek Wanless over a decade ago: how much should we spend on the NHS?
In fact, at the time Brown asked Wanless this question the political decision had already been taken to boost NHS spending. Tony Blair had revealed in January 2000 on the BBC Breakfast with Frost programme the government's intention to increase health spending to match the average of the then fifteen countries that made up the European Union (EU-15)1 e an apparently unilateral decision which enraged Brown.2 But at the time the UK was spending 7% of its GDP on health care e 1.5% privately and just 5.5% of public money on the NHS.3 The
* Tel.: þ44 0207 307 2540. E-mail address: [email protected]. http://dx.doi.org/10.1016/j.surge.2014.11.004 1479-666X/© 2014 Royal College of Surgeons of Edinburgh (Scottish charity number SC005317) and Royal College of Surgeons in Ireland. Published by Elsevier Ltd. All rights reserved.
122
t h e s u r g e o n 1 3 ( 2 0 1 5 ) 1 2 1 e1 2 6
Fig. 1 e Inpatient waiting lists: English NHS: 1987e2009. Source:4
EU-15 average spend in 2000 was around 9% of GDP. Money, or rather, the lack of it, was mirrored by the performance of the NHS. The inpatient and day case waiting list had reached its highest level ever by the turn of the century (Fig. 1). While one in fifty of the population was waiting for a bed in hospital in 2000, it was the length of time people languished there which, even the short time since, seems so shocking. Over 50,000 patients were still waiting over a year to be admitted to hospital as an inpatient for example. (Just six years later this had reduced to nearly zero.)4 With key and very public measures of performance such as waiting times hitting the red section of the dial, and with a growing volume of media stories of personal tales of woe, the message being sent up the NHS managerial line to the ‘top of the office’ in late 1999 was ‘send more money!’ (Or, presumably, to expect even lengthier waiting lists and waiting times and more grief from the media.) Blair's response e to match the EU-15 average e may have seemed somewhat lacking in ambition, but adding two percentage points of GDP (equivalent to £20 billion in 2000 e nearly £28 billion in today's prices) was anything but insignificant. Gordon Brown's response was to invite Derek Wanless to review the future of NHS funding in order to put some analysis on the bones of the political decision.
The Wanless review of NHS funding Although the question Wanless faced had been one politicians of necessity had had to answer since the inception of the NHS (after all, a budget had to be set each year), it is perhaps surprising that the review of NHS funding by Wanless was really the first in the history of the NHS to try and get to grips with
such a fundamental issue. The old civil servant's joke about NHS budget setting e last year's money plus a bit for scandals e was no longer fit for purpose. Wanless's approach inevitably combined a great deal of number crunching, population projections and estimates of need on the one hand, with the political reality of a Treasury naturally insistent on pushing the need for the NHS to use public money as efficiently as possible and the fact that there were plenty of other pressing claims on government's limited revenues. Derek Wanless produced his final recommendations for future UK NHS funding in 20025 based on a ‘vision’ for the NHS described in terms of the quality of the service it should offer over the two decades to 2022; standard best practice pathways of care for patients, very short waiting times, etc. The review also suggested annual NHS productivity improvements of around 2e3%. On the demand side, Wanless set out three future spending scenarios (which also varied assumptions about NHS productivity) which made different assumptions about the health (and hence demand on the NHS) of the UK population. A population more ‘engaged’ with its own health and more responsive to preventative health measures would, for instance, need fewer and less intensive health services and hence would attenuate the need for funding increases. On the other hand, poorer NHS performance on productivity would mean a need for higher spending overall. Wanless recommended increasing UK NHS spending from around 7.5% in 2002 to between 10.5% (the ‘fully engaged’ scenario) to either 11% (the ‘solid progress’) or 12.5% (‘slow uptake’) by 2022/23 (Fig. 2). There was no doubt which scenario the Treasury preferred. A ‘fully engaged’ population together with a health service steadily improving its productivity at around 2% a year not only produced the lowest need
t h e s u r g e o n 1 3 ( 2 0 1 5 ) 1 2 1 e1 2 6
123
Fig. 2 e Wanless review UK NHS spending recommendations. Source: data:5
for extra spending but also a path which, by 2017/18, started to flatten out as a proportion of GDP in a nicely sustainable way.
The economists' answer One obvious limit to spending of course is 100% of GDP. But the actual, practical limit on spending must be less than this and greater than 0%. But what is it? Naturally, there is a theoretical economic answer (although its practicality might be questioned) which involves an understanding of what drives health care spending and the opportunity costs of spending society's scarce resources in one way and not another. Historically at least, the drivers of spending include: income (both personal and in the aggregate across a country), population size and structure, relative health care price inflation (the rate of pay increases in health care relative to increases across entire economies for example) and technical and medical innovation (new drugs, new surgical techniques, advances in anaesthetics, etc).6 Changes in population e especially population ageing e are typically less important drivers.7,8 As Fig. 3 shows, countries with higher GDP per head tend not just to spend more on health (as we might expect) but more as a proportion of GDP; the income elasticity of demand for health care is greater than 1. The US and Luxembourg are international outliers however e the former spending much more than would be expected given per capita income (due to high costs and inefficiencies), the latter spending much less (due in part to cross border flows of patients out of Luxembourg). The conclusion that, in essence, more money and supplyinduced demand have prompted countries to spend more on health care is a strictly neutral economic observation. It fails in a normative way to settle what level of spending is the right level. Since the late 1990s for example, the Treasury and, since
its creation in 2010, the Office for Budget Responsibility (OBR), have produced 50-year projections for government department spending, including the NHS. Under a range of assumptions, the latest OBR projections suggest NHS spending by 2063/4 of anything between 7.5% and 14.4% of GDP.9 But these are ‘policy neutral’ projections (based largely on population projections). They are not forecasts or predictions, and are not designed to suggest how much we should spend on the NHS, just how much we are likely to spend given the way a certain set of projection parameters could change over time. One answer to the normative NHS spending question would be to identify the point at which spending an extra pound would produce less than a pound's worth of health benefit. But there are practical problems with this cost benefit approach. First, while the development of generic benefit measures e such as quality adjusted life years (QALYs) - have provided NICE with a common currency with which to compare cost effectiveness across alternative interventions and technologies, we currently only know the impact or benefits in these terms of a very small fraction of the things the NHS spends its money on. Second, even if we had a commensurate measure (such as QALYs) for all possible uses of each health pound spent, we have little knowledge of the value of these outputs in monetary terms in order to compare to the inputs (ie spending). But importantly, the point at which spending on health care ceases to become a good investment depends on the returns (not necessarily measured in terms of health benefits) to be derived from switching spending to other things e education, housing, or private spending. This raises a huge practical problem, -as noted by Appleby and Harrison,10 “Determining the point at which allocative efficiency is maximised (and hence the optimal level of health care
124
t h e s u r g e o n 1 3 ( 2 0 1 5 ) 1 2 1 e1 2 6
Fig. 3 e Relationship between GDP per capita and total health care spending as a percentage of GDP: Selected OECD countries: 2010. Source: data:3
spending identified) would require the Herculean task of quantifying (in commensurate units) all the total returns curves for all possible uses of the nation's scarce resources across all levels of spending and then allocating resources (in effect setting budgets) for every possible type of spending in a way which maximised returns at every level of spending until all resources are consumed. This exercise would need to be undertaken continuously to accommodate technological changes. The fact that every individual would place different values on the returns from different types of spending adds an almost infinitely complicating twist to an already near-impossible task. It is perhaps no surprise, therefore, that economists' traditionally preferred allocative/rationing mechanism is the market.” While markets have evolved as the best way we know to grapple with the allocative/rationing problem, they do so in a strictly amoral way; markets do not care who gets what or how much, only that demand equals supply and the market clears at a given set of prices. But because of this, in the case of health care (and in some other areas of life), we have chosen to pay for health care collectively. This means that total spending on the NHS is not simply the aggregate of all the spending decisions of individuals (as it would be in private markets). More than this, it also means someone, somewhere, somehow has to take a decision about total funding. The usual private decisions over spending priorities taken by all of us every day in which e to varying degrees of sophistication e we weigh up the costs and benefits of committing our scarce resources (time, effort, money) in various ways has, in the case of the NHS, become a nationalised or public priority setting decision. Nevertheless, in essence the problem remains similar to that in the private realm e to choose some
combination of spending on the things we want (health care, education, etc) given our income (in the case of governments, a combination of tax revenues and borrowing). There are some notable differences however. Spending on the NHS (and all other areas of public spending) involves taxpayers' money and hence the need to reach some collective agreement about the balance of spending. In the private realm, individuals make their own decisions based on assessments of their own incomes and wants. Economists are of course aware that this is not strictly true always and everywhere. As we all know, families do not simply consist of individuals all trying to maximise their utility regardless of those with whom they share a roof; we all have experience of negotiating a fair distribution of spending and of trading off personal benefits for a communal good. However, the scale of this distributional issue and the fact that (in theory and largely in practice) governments exist as agents acting on behalf of citizens makes these particularly tricky issues to deal with. Part of the solution in all societies has been to design political processes and institutions which attempt to resolve conflicting and competing priorities between the wants and desires of citizens.
The politician's answer? So, does the answer to the question of how much to spend on the NHS reduce to a party political beauty contest based on manifesto promises and the outcome of general elections? In part it does of course. But this doesn't really answer the question. Rather, it shifts its location to decision making by political parties; we're back with Tony and Gordon arguing over the how to spend the Budget in 2000. Then, the decision
t h e s u r g e o n 1 3 ( 2 0 1 5 ) 1 2 1 e1 2 6
125
Fig. 4 e Actual and projected UK NHS spending as a percentage of GDP. Source:11. NB: UK NHS spend projections assume that growth from 2012 equals inflation (GDP deflator) and that GDP grows at the central Office for Budget Responsibility (OBR) projection in its 2013 Fiscal Sustainability Report.12
was more driven (and pace the review by Wanless) not by technical considerations involving demographic changes and assessments of the income elasticity of demand for health care for example, but an overt public demand for higher spending (as reflected in opinion polls at the time and virtually daily media coverage of bad news stories about the NHS) and partly by unfavourable comparisons with other European countries. This wasn't a Wanless-style costed ‘vision’ of what the NHS could look like in ten or twenty years, it was simply the hope that by spending more like other European countries we could get a health service more like Germany or France. And the aspiration (in funding terms at least) was broadly met. UK NHS spending increased to around 8% of GDP by 2009 (Fig. 4). Add to that around 1.5% of private spending (in order to make a proper comparison with other EU countries) and the UK essentially met the EU-15 average spend on health care.
The future … bright? But what about the future? As Fig. 4 also shows, projecting UK NHS spending on the basis of no real growth for the decade from 2011 e the planning assumption made in 2013 by NHS England13 e implies that the NHS share of a growing economy will shrink by nearly 2 percentage points compared to 2009, wiping out much of the increase from 2001 to 2009. As planning assumptions go this is fairly dismal. In fact it is almost certainly too dismal. Indeed, this was the view of the Barker Commission which reported this year and in particular noted the fact that over the next ten years, pressures to spend more on health and social care would be unabating and, given previous trends in spending, were likely to amount to a combined total of around 11%e12% of GDP by 2025.14
Conclusion One answer to the question of how much we should spend on health (and social) care is the apparently trivial one of ‘whatever we want.’ But this, as the economic point of view stresses, involves giving up the benefits of non-health care spending e which is fine while these are less than the benefits of spending on health. The practical problem however is identifying the point at which we should switch from investing in health to devoting our scarce resources on other things which we value more highly. These difficulties are not merely technical, but involve the tricky business of establishing valuations (of the utility of the process and outcomes of health care for example) and reaching agreement collectively about the inevitable differences in valuations between people and the trade offs we are willing to make. This sounds a lot like the business of politics, but informed, I would hope, by an economist's way of thinking (and even, where appropriate, a bit of data).
references
1. BBC News. Blair admits NHS underfunded. BBC News; 16 January 2000 [accessed 02.09.14], http://news.bbc.co.uk/1/hi/health/ 605962.stm. 2. The Guardian Newspaper. Brown and Blair: top TB-GB moments. 19 June 2007 [accessed 02.09.14], http://www.theguardian. com/politics/2007/jun/19/tonyblair.labour. 3. OECD. Health statistics 2014 e frequently requested data. Paris: OECD; 2014 [accessed 02.09.14], http://www.oecd.org/els/ health-systems/oecd-health-statistics-2014-frequentlyrequested-data.htm.
126
t h e s u r g e o n 1 3 ( 2 0 1 5 ) 1 2 1 e1 2 6
4. Department of Health. Historic waiting time series. London: Department of Health; 2010 [accessed 02.09.14], http:// webarchive.nationalarchives.gov.uk/20130107105354/http:// www.dh.gov.uk/en/Publicationsandstatistics/Statistics/ Performancedataandstatistics/ HospitalWaitingTimesandListStatistics/index.htm. 5. Wanless D. Securing our future health: taking a long term view. Final report. London: HMT; 2002 [accessed 02.09.14], http://si. easp.es/derechosciudadania/wp-content/uploads/2009/10/4. Informe-Wanless.pdf. 6. Appleby J. Spending on health and social care over the next 50 years: why think long term?. London: The King's Fund; 2013 [accessed 02.09.14], http://www.kingsfund.org.uk/sites/files/ kf/field/field_publication_file/Spending%20on%20health%20... %2050%20years%20low%20res%20for%20web.pdf. 7. Newhouse JP. Medical care costs: how much welfare loss? J Econ Perspect 1992;6(3):3e21. 8. Cutler DM. Technology, health costs, and the NIH. In: Paper prepared for the National Institutes of Health Roundtable on the Economics of Biomedical Research. Cambridge, MA: Harvard University and the National Bureau of Economic Research; 1995. 9. Office for Budget Responsibility. Fiscal sustainability report. London: OBR; 2014 [accessed 02.09.14], http://cdn. budgetresponsibility.org.uk/41298-OBR-accessible.pdf.
10. Appleby J, Harrison A. Spending on health care: how much is enough?. London: The King's Fund; 2006 [accessed 02.09.14], http://www.kingsfund.org.uk/sites/files/kf/field/field_ publication_file/spending-health-care-how-much-is-enoughjohn-appleby-tony-harrison-kings-fund-9-february-2006.pdf. 11. Appleby J, Galea A, Murray R. The productivity challenge: experience from the frontline. London: The King's Fund; 2014 [accessed 02.09.14], http://www.kingsfund.org.uk/sites/files/ kf/field/field_publication_file/the-nhs-productivitychallenge-kingsfund-may14.pdf. 12. Office for Budget Responsibility. Fiscal sustainability report. London: OBR; 2013 [accessed 02.09.14], http:// budgetresponsibility.org.uk/wordpress/docs/2013-FSR_OBR_ web.pdf. 13. England NHS. The NHS belongs to the people: a call to action. London: NHS England; 2013 [accessed 02.09.14], http://www. england.nhs.uk/wp-content/uploads/2013/07/nhs_belongs. pdf. 14. Barker K. A new settlement for health and social care: final report [The Barker Commission]. London: The King's Fund; 2014 [accessed 02.09.14], http://www.kingsfund.org.uk/sites/files/ kf/field/field_publication_file/Commission%20Final%20% 20interactive.pdf.
Available online at www.sciencedirect.com
ScienceDirect The Surgeon, Journal of the Royal Colleges of Surgeons of Edinburgh and Ireland www.thesurgeon.net
Matter for Debate
How much should we spend on health care? John Appleby* The King's Fund, 11-13 Cavendish Square, London, W1G 0AN, United Kingdom
article info
abstract
Article history:
Background: For a tax-funded health service such as the NHS, how much is spent in total is a
Received 10 October 2014
crucial (and necessary) decision which precedes and determines the consumption of
Received in revised form
health care by individuals. Determining total spending in private markets is not a partic-
12 November 2014
ularly important (or necessarily interesting) issue as it is merely the sum of all the private
Accepted 15 November 2014
spending decisions of individual consumers in the market. However, economists would
Available online 10 December 2014
argue there are parallels between these (collective) public and (individual) private decisions; both involve balancing costs and benefits, and trade offs with other ways of
Keywords:
spending limited budgets.
NHS
Main findings: Economists would further suggest a decision rule to identify how much to spend
Spending
on health care (or anything else for that matter); continue increasing spending on health care
Health economics
until the next pound yields greater benefit from spending on some other, non-health, care activity. Although NICE operate a version of this decision rule when assessing the cost effectiveness of individual health technologies, its wider application to decide on total health spending (versus other beneficial uses of society's scarce resources) has prohibitive data implications and requires agreement on the value of the benefits side of the calculation. Conclusions: Given that a decision has to be made however, in practice the decision process falls within the political sphere, informed, up to a point, by data on the determinants of spending (eg population projections), international benchmarking and the exigencies of prevailing macroeconomic circumstances. © 2014 Royal College of Surgeons of Edinburgh (Scottish charity number SC005317) and Royal College of Surgeons in Ireland. Published by Elsevier Ltd. All rights reserved.
Introduction With news of growing financial distress emerging from NHS organisations around the UK and with health care set to be a central theme of next year's general election campaign, it's worth asking a question the then Chancellor Gordon Brown posed Derek Wanless over a decade ago: how much should we spend on the NHS?
In fact, at the time Brown asked Wanless this question the political decision had already been taken to boost NHS spending. Tony Blair had revealed in January 2000 on the BBC Breakfast with Frost programme the government's intention to increase health spending to match the average of the then fifteen countries that made up the European Union (EU-15)1 e an apparently unilateral decision which enraged Brown.2 But at the time the UK was spending 7% of its GDP on health care e 1.5% privately and just 5.5% of public money on the NHS.3 The
* Tel.: þ44 0207 307 2540. E-mail address: [email protected]. http://dx.doi.org/10.1016/j.surge.2014.11.004 1479-666X/© 2014 Royal College of Surgeons of Edinburgh (Scottish charity number SC005317) and Royal College of Surgeons in Ireland. Published by Elsevier Ltd. All rights reserved.
122
t h e s u r g e o n 1 3 ( 2 0 1 5 ) 1 2 1 e1 2 6
Fig. 1 e Inpatient waiting lists: English NHS: 1987e2009. Source:4
EU-15 average spend in 2000 was around 9% of GDP. Money, or rather, the lack of it, was mirrored by the performance of the NHS. The inpatient and day case waiting list had reached its highest level ever by the turn of the century (Fig. 1). While one in fifty of the population was waiting for a bed in hospital in 2000, it was the length of time people languished there which, even the short time since, seems so shocking. Over 50,000 patients were still waiting over a year to be admitted to hospital as an inpatient for example. (Just six years later this had reduced to nearly zero.)4 With key and very public measures of performance such as waiting times hitting the red section of the dial, and with a growing volume of media stories of personal tales of woe, the message being sent up the NHS managerial line to the ‘top of the office’ in late 1999 was ‘send more money!’ (Or, presumably, to expect even lengthier waiting lists and waiting times and more grief from the media.) Blair's response e to match the EU-15 average e may have seemed somewhat lacking in ambition, but adding two percentage points of GDP (equivalent to £20 billion in 2000 e nearly £28 billion in today's prices) was anything but insignificant. Gordon Brown's response was to invite Derek Wanless to review the future of NHS funding in order to put some analysis on the bones of the political decision.
The Wanless review of NHS funding Although the question Wanless faced had been one politicians of necessity had had to answer since the inception of the NHS (after all, a budget had to be set each year), it is perhaps surprising that the review of NHS funding by Wanless was really the first in the history of the NHS to try and get to grips with
such a fundamental issue. The old civil servant's joke about NHS budget setting e last year's money plus a bit for scandals e was no longer fit for purpose. Wanless's approach inevitably combined a great deal of number crunching, population projections and estimates of need on the one hand, with the political reality of a Treasury naturally insistent on pushing the need for the NHS to use public money as efficiently as possible and the fact that there were plenty of other pressing claims on government's limited revenues. Derek Wanless produced his final recommendations for future UK NHS funding in 20025 based on a ‘vision’ for the NHS described in terms of the quality of the service it should offer over the two decades to 2022; standard best practice pathways of care for patients, very short waiting times, etc. The review also suggested annual NHS productivity improvements of around 2e3%. On the demand side, Wanless set out three future spending scenarios (which also varied assumptions about NHS productivity) which made different assumptions about the health (and hence demand on the NHS) of the UK population. A population more ‘engaged’ with its own health and more responsive to preventative health measures would, for instance, need fewer and less intensive health services and hence would attenuate the need for funding increases. On the other hand, poorer NHS performance on productivity would mean a need for higher spending overall. Wanless recommended increasing UK NHS spending from around 7.5% in 2002 to between 10.5% (the ‘fully engaged’ scenario) to either 11% (the ‘solid progress’) or 12.5% (‘slow uptake’) by 2022/23 (Fig. 2). There was no doubt which scenario the Treasury preferred. A ‘fully engaged’ population together with a health service steadily improving its productivity at around 2% a year not only produced the lowest need
t h e s u r g e o n 1 3 ( 2 0 1 5 ) 1 2 1 e1 2 6
123
Fig. 2 e Wanless review UK NHS spending recommendations. Source: data:5
for extra spending but also a path which, by 2017/18, started to flatten out as a proportion of GDP in a nicely sustainable way.
The economists' answer One obvious limit to spending of course is 100% of GDP. But the actual, practical limit on spending must be less than this and greater than 0%. But what is it? Naturally, there is a theoretical economic answer (although its practicality might be questioned) which involves an understanding of what drives health care spending and the opportunity costs of spending society's scarce resources in one way and not another. Historically at least, the drivers of spending include: income (both personal and in the aggregate across a country), population size and structure, relative health care price inflation (the rate of pay increases in health care relative to increases across entire economies for example) and technical and medical innovation (new drugs, new surgical techniques, advances in anaesthetics, etc).6 Changes in population e especially population ageing e are typically less important drivers.7,8 As Fig. 3 shows, countries with higher GDP per head tend not just to spend more on health (as we might expect) but more as a proportion of GDP; the income elasticity of demand for health care is greater than 1. The US and Luxembourg are international outliers however e the former spending much more than would be expected given per capita income (due to high costs and inefficiencies), the latter spending much less (due in part to cross border flows of patients out of Luxembourg). The conclusion that, in essence, more money and supplyinduced demand have prompted countries to spend more on health care is a strictly neutral economic observation. It fails in a normative way to settle what level of spending is the right level. Since the late 1990s for example, the Treasury and, since
its creation in 2010, the Office for Budget Responsibility (OBR), have produced 50-year projections for government department spending, including the NHS. Under a range of assumptions, the latest OBR projections suggest NHS spending by 2063/4 of anything between 7.5% and 14.4% of GDP.9 But these are ‘policy neutral’ projections (based largely on population projections). They are not forecasts or predictions, and are not designed to suggest how much we should spend on the NHS, just how much we are likely to spend given the way a certain set of projection parameters could change over time. One answer to the normative NHS spending question would be to identify the point at which spending an extra pound would produce less than a pound's worth of health benefit. But there are practical problems with this cost benefit approach. First, while the development of generic benefit measures e such as quality adjusted life years (QALYs) - have provided NICE with a common currency with which to compare cost effectiveness across alternative interventions and technologies, we currently only know the impact or benefits in these terms of a very small fraction of the things the NHS spends its money on. Second, even if we had a commensurate measure (such as QALYs) for all possible uses of each health pound spent, we have little knowledge of the value of these outputs in monetary terms in order to compare to the inputs (ie spending). But importantly, the point at which spending on health care ceases to become a good investment depends on the returns (not necessarily measured in terms of health benefits) to be derived from switching spending to other things e education, housing, or private spending. This raises a huge practical problem, -as noted by Appleby and Harrison,10 “Determining the point at which allocative efficiency is maximised (and hence the optimal level of health care
124
t h e s u r g e o n 1 3 ( 2 0 1 5 ) 1 2 1 e1 2 6
Fig. 3 e Relationship between GDP per capita and total health care spending as a percentage of GDP: Selected OECD countries: 2010. Source: data:3
spending identified) would require the Herculean task of quantifying (in commensurate units) all the total returns curves for all possible uses of the nation's scarce resources across all levels of spending and then allocating resources (in effect setting budgets) for every possible type of spending in a way which maximised returns at every level of spending until all resources are consumed. This exercise would need to be undertaken continuously to accommodate technological changes. The fact that every individual would place different values on the returns from different types of spending adds an almost infinitely complicating twist to an already near-impossible task. It is perhaps no surprise, therefore, that economists' traditionally preferred allocative/rationing mechanism is the market.” While markets have evolved as the best way we know to grapple with the allocative/rationing problem, they do so in a strictly amoral way; markets do not care who gets what or how much, only that demand equals supply and the market clears at a given set of prices. But because of this, in the case of health care (and in some other areas of life), we have chosen to pay for health care collectively. This means that total spending on the NHS is not simply the aggregate of all the spending decisions of individuals (as it would be in private markets). More than this, it also means someone, somewhere, somehow has to take a decision about total funding. The usual private decisions over spending priorities taken by all of us every day in which e to varying degrees of sophistication e we weigh up the costs and benefits of committing our scarce resources (time, effort, money) in various ways has, in the case of the NHS, become a nationalised or public priority setting decision. Nevertheless, in essence the problem remains similar to that in the private realm e to choose some
combination of spending on the things we want (health care, education, etc) given our income (in the case of governments, a combination of tax revenues and borrowing). There are some notable differences however. Spending on the NHS (and all other areas of public spending) involves taxpayers' money and hence the need to reach some collective agreement about the balance of spending. In the private realm, individuals make their own decisions based on assessments of their own incomes and wants. Economists are of course aware that this is not strictly true always and everywhere. As we all know, families do not simply consist of individuals all trying to maximise their utility regardless of those with whom they share a roof; we all have experience of negotiating a fair distribution of spending and of trading off personal benefits for a communal good. However, the scale of this distributional issue and the fact that (in theory and largely in practice) governments exist as agents acting on behalf of citizens makes these particularly tricky issues to deal with. Part of the solution in all societies has been to design political processes and institutions which attempt to resolve conflicting and competing priorities between the wants and desires of citizens.
The politician's answer? So, does the answer to the question of how much to spend on the NHS reduce to a party political beauty contest based on manifesto promises and the outcome of general elections? In part it does of course. But this doesn't really answer the question. Rather, it shifts its location to decision making by political parties; we're back with Tony and Gordon arguing over the how to spend the Budget in 2000. Then, the decision
t h e s u r g e o n 1 3 ( 2 0 1 5 ) 1 2 1 e1 2 6
125
Fig. 4 e Actual and projected UK NHS spending as a percentage of GDP. Source:11. NB: UK NHS spend projections assume that growth from 2012 equals inflation (GDP deflator) and that GDP grows at the central Office for Budget Responsibility (OBR) projection in its 2013 Fiscal Sustainability Report.12
was more driven (and pace the review by Wanless) not by technical considerations involving demographic changes and assessments of the income elasticity of demand for health care for example, but an overt public demand for higher spending (as reflected in opinion polls at the time and virtually daily media coverage of bad news stories about the NHS) and partly by unfavourable comparisons with other European countries. This wasn't a Wanless-style costed ‘vision’ of what the NHS could look like in ten or twenty years, it was simply the hope that by spending more like other European countries we could get a health service more like Germany or France. And the aspiration (in funding terms at least) was broadly met. UK NHS spending increased to around 8% of GDP by 2009 (Fig. 4). Add to that around 1.5% of private spending (in order to make a proper comparison with other EU countries) and the UK essentially met the EU-15 average spend on health care.
The future … bright? But what about the future? As Fig. 4 also shows, projecting UK NHS spending on the basis of no real growth for the decade from 2011 e the planning assumption made in 2013 by NHS England13 e implies that the NHS share of a growing economy will shrink by nearly 2 percentage points compared to 2009, wiping out much of the increase from 2001 to 2009. As planning assumptions go this is fairly dismal. In fact it is almost certainly too dismal. Indeed, this was the view of the Barker Commission which reported this year and in particular noted the fact that over the next ten years, pressures to spend more on health and social care would be unabating and, given previous trends in spending, were likely to amount to a combined total of around 11%e12% of GDP by 2025.14
Conclusion One answer to the question of how much we should spend on health (and social) care is the apparently trivial one of ‘whatever we want.’ But this, as the economic point of view stresses, involves giving up the benefits of non-health care spending e which is fine while these are less than the benefits of spending on health. The practical problem however is identifying the point at which we should switch from investing in health to devoting our scarce resources on other things which we value more highly. These difficulties are not merely technical, but involve the tricky business of establishing valuations (of the utility of the process and outcomes of health care for example) and reaching agreement collectively about the inevitable differences in valuations between people and the trade offs we are willing to make. This sounds a lot like the business of politics, but informed, I would hope, by an economist's way of thinking (and even, where appropriate, a bit of data).
references
1. BBC News. Blair admits NHS underfunded. BBC News; 16 January 2000 [accessed 02.09.14], http://news.bbc.co.uk/1/hi/health/ 605962.stm. 2. The Guardian Newspaper. Brown and Blair: top TB-GB moments. 19 June 2007 [accessed 02.09.14], http://www.theguardian. com/politics/2007/jun/19/tonyblair.labour. 3. OECD. Health statistics 2014 e frequently requested data. Paris: OECD; 2014 [accessed 02.09.14], http://www.oecd.org/els/ health-systems/oecd-health-statistics-2014-frequentlyrequested-data.htm.
126
t h e s u r g e o n 1 3 ( 2 0 1 5 ) 1 2 1 e1 2 6
4. Department of Health. Historic waiting time series. London: Department of Health; 2010 [accessed 02.09.14], http:// webarchive.nationalarchives.gov.uk/20130107105354/http:// www.dh.gov.uk/en/Publicationsandstatistics/Statistics/ Performancedataandstatistics/ HospitalWaitingTimesandListStatistics/index.htm. 5. Wanless D. Securing our future health: taking a long term view. Final report. London: HMT; 2002 [accessed 02.09.14], http://si. easp.es/derechosciudadania/wp-content/uploads/2009/10/4. Informe-Wanless.pdf. 6. Appleby J. Spending on health and social care over the next 50 years: why think long term?. London: The King's Fund; 2013 [accessed 02.09.14], http://www.kingsfund.org.uk/sites/files/ kf/field/field_publication_file/Spending%20on%20health%20... %2050%20years%20low%20res%20for%20web.pdf. 7. Newhouse JP. Medical care costs: how much welfare loss? J Econ Perspect 1992;6(3):3e21. 8. Cutler DM. Technology, health costs, and the NIH. In: Paper prepared for the National Institutes of Health Roundtable on the Economics of Biomedical Research. Cambridge, MA: Harvard University and the National Bureau of Economic Research; 1995. 9. Office for Budget Responsibility. Fiscal sustainability report. London: OBR; 2014 [accessed 02.09.14], http://cdn. budgetresponsibility.org.uk/41298-OBR-accessible.pdf.
10. Appleby J, Harrison A. Spending on health care: how much is enough?. London: The King's Fund; 2006 [accessed 02.09.14], http://www.kingsfund.org.uk/sites/files/kf/field/field_ publication_file/spending-health-care-how-much-is-enoughjohn-appleby-tony-harrison-kings-fund-9-february-2006.pdf. 11. Appleby J, Galea A, Murray R. The productivity challenge: experience from the frontline. London: The King's Fund; 2014 [accessed 02.09.14], http://www.kingsfund.org.uk/sites/files/ kf/field/field_publication_file/the-nhs-productivitychallenge-kingsfund-may14.pdf. 12. Office for Budget Responsibility. Fiscal sustainability report. London: OBR; 2013 [accessed 02.09.14], http:// budgetresponsibility.org.uk/wordpress/docs/2013-FSR_OBR_ web.pdf. 13. England NHS. The NHS belongs to the people: a call to action. London: NHS England; 2013 [accessed 02.09.14], http://www. england.nhs.uk/wp-content/uploads/2013/07/nhs_belongs. pdf. 14. Barker K. A new settlement for health and social care: final report [The Barker Commission]. London: The King's Fund; 2014 [accessed 02.09.14], http://www.kingsfund.org.uk/sites/files/ kf/field/field_publication_file/Commission%20Final%20% 20interactive.pdf.
