Vital signs: economics of the NHS

The NHS is 70 this year. It’s an anniversary that has brought both celebration and soul searching.

That’s hardly surprising, given the symbolic link between 70 – three score years and ten – and life expectancy and that the central purpose of the NHS is to stave off mortality and maintain vitality. It might be expected that such an anniversary has raised difficult, existential even, questions. How much money does the system need? What can we afford it? Is there another way?

For construction and architecture, these questions are important. Across the UK the NHS employs about 1.5 million people and deals with millions of patients each week. Where staff work and where patients are treated not only matters, but changes over time.

This not only presents a constant challenge to design and deliver the best and most appropriate building, it presents the huge political problem of finding the resources to do so.

So where are we with spending on our health service estate and where are we heading?

Longevity is growing

It is worth reflecting on the fact that an average UK child born when the NHS was established in 1948 would have would have expected to live to about now, 2018. Female life expectancy was 71 and male life expectancy was 66. Today those figures are nearer 83 and 79.

Since the NHS was established in 1948 the share of the population over 70 has doubled. We are living much longer. A success, yes. But a double-edged sword for the NHS.

That we reasonably expect longer lives in Britain is a credit to the NHS and better healthcare. But boost the number of elderly people and you boost the demand for health services. According to figures from the Institute for Fiscal Studies, for every healthcare pound spent on a 30-year-old more than five are spent on an 85-year-old.

For both those reasons the £20 billion ‘birthday present for the NHS’ unveiled by Theresa May in June seems appropriate. Though, looking at the challenges facing the massive organisation, relative to its needs, it isn’t the dream birthday present the NHS might have hoped for. But there are challenges facing the national accounts.

Looked at from the perspective of refreshing and improving the built environment that supports the NHS, there is one obvious other challenge. Emotionally and politically it is easier to put off an investment in a building than put off providing treatment for sick people. Capital spending plans are often the first victims of financial constraint. The immediate so easily trumps the long-term.

This is evident in the numbers. Despite a rapidly rising and rapidly ageing population, spending on health-related construction has plunged since the global financial crisis (Chart 1). Admittedly a surge in capital spending under the last Labour administration will have raised the overall quality of the estate, but the proportion of construction work relating to the health sector has fallen to its lowest level for almost 30 years.

What’s more, when we look at the age of the NHS estate it is perhaps not as fresh as we might expect after the spending surge of the early 2000s. Almost 14% of it pre-dates the NHS and more than 60% is more than 20 years old (Chart 2).

You obviously can’t measure how effective the estate is in supporting the health service just by size and age of the buildings, but there are clear signs of resources being stretched.

There is a general view, noted by the National Audit Office, that if bed occupancy rises above 85% problems can occur. These may be slight at just above 85%, but as bed space becomes tighter there is more likelihood of periodic bed crises and increased numbers of hospital-acquired infections.

Late last year The King’s Fund, a healthcare think tank, in a publication NHS hospital bed numbers: past, present, future, pointed to the trend that is evident in Chart 3 of higher bed-occupancy. It noted: ‘Today there are signs of a growing shortage of beds. In 2016/17, overnight general and acute bed occupancy averaged 90.3%, and regularly exceeded 95% in winter, well above the level many consider safe.’

The signs seem clear, the service is under severe pressure and capital investment of sorts seems to be needed.

Investment in buildings

So, it is not surprising that there have also been signs that more money may well be heading towards improving the building stock. In March the government put out a news story headlined “NHS gets funding green light for new buildings, wards and beds”. It said that 40 NHS hospitals and community services will get £760 million to modernise and transform their buildings and services in the year of the NHS’s 70th birthday.

These figures need to be put in context. According to the NHS document Next steps on the NHS five year forward view, published in March 2017, the NHS spends over £6.5 billion maintaining and running its estate and facilities.

£750 million sounds like a flood of money, but is more a dribble when spread over some years and compared with the total spend.

And in recent months there appears to have been more work let to contractors for health-related work, as the Barbour ABI data in Chart 4 shows. But this rise comes from a low level and is still below the level seen during one of the tougher periods of austerity in 2012.

It is worth noting that health is devolved to the nations of the UK, which means much if not most debate ends up about England rather than the UK. So it is noticeable in Chart 5, when we look at the UK from a regional perspective, that Scotland over the past five years has seen a greater value of contracts let. The relative scale of investment in Scotland’s health estate would be even more apparent if the figures are adjusted for population, which shows it at around twice as much per head as in England.

The boost to Scotland’s spending on health-related work has been largely down to a cluster of large new hospital projects in recent years across the country, which followed the £840 million investment in the Queen Elizabeth II hospital in Glasgow – which is not included in the figures.

While the relative lack of funding in recent years may seemingly suggest capital investment in the health estate is a relatively low priority, the case for spending more is both great and immediate.

The government sponsored Naylor Review Why the Estate Matters for Patients, published last year, was clear: “Without investment in the NHS estate the Five Year Forward View (5YFV) cannot be delivered, the NHS estate will remain unfit for purpose and will continue to deteriorate.”

The review estimated that £10 billion of capital investment in the estate was needed to cover the backlog of maintenance and to deliver on the 5YFV.

Gobbling up cash

With a rising population and the bulge of the baby boomers hitting hot spots for costs to the NHS, we can expect the challenge to deliver good healthcare to rise sharply over the next decade or so. The stark reality, behind the high-praise and warm words for the NHS, is that health spending will gobble ever more of what we generate through our labours.

According to the Institute of Fiscal Studies, public spending on health has increased substantially over the history of the NHS, rising from 3.5% of national income in 1949–50 to 7.3% in 2016–17. Given that national income has risen substantially over time, the amount of money taken by the NHS across the UK has risen in real terms more than ten-fold since the 1950s to around £150 billion.

This clearly presents a problem for the political classes given that in the UK health is primarily provided through the public purse. As its share of Treasury funds expands – it now accounts for about a fifth of public funding – spending on the NHS butts up against the abstract and sometimes near obsessive debate over the 'appropriate' size of the state.

In reality, the increased share of our resources going towards health is a positive sign. As the relative cost of primary needs such as clothes, food and heating have fallen sharply, even though consumption often rises, they take a smaller share of our budget. This leaves more headroom to spend more on higher order needs, such as entertainment, education, where we live and importantly on improving our health and extending our lives. And we clearly choose, collectively, to exploit that headroom.

So, looking to the future, while health-related construction spending may be low at present it is hard to see how it can remain so.

There will be changes to how health is delivered, productivity gains, alternative approaches required to create the spaces needed for healthcare professionals and patients. These developments will most likely reduce the pressure to expand the estate.

But however we to it, our health services need to be delivered in large part within buildings. The mood among the experts suggest that the health estate will need to be increasingly flexible to accommodate increasingly rapid changes. This will both challenge architects and provide potentially huge opportunities.

The architectural skills to provide the flexibility required within the health sector estate and to provide buildings that enhance productivity and efficiency would appear to be much needed. The more immediate big question is whether and how the funding can be found to turn that need into effective demand.