The NHS has
seen unprecedented increases in spending in recent years, with funding
having doubled since 1997 in cash terms. However, the cost of
commitments within the NHS has also risen over the past few years, with
expenditure for PFI schemes, consultant and GP contracts helping to
counteract any increases in annual funding. Many of these costs are
expected to continue beyond 2008, when the rate of increase of
funding is expected to decline. Whilst there is currently great
potential for enhanced services at primary care level, rising financial
pressures in other areas of public healthcare spending mean that these
services will become increasingly constrained.
At the present time, 2006-2007, Healthcare expenditure
in England is estimated to be of the order of £96.6 billion, of which
around £85.1 billion is allocated to the National Health Service.
The Department of Health currently disposes of a budget of approximately
£65 billion, which is forecast to reach £74 billion in 2005-06, whilst
NHS expenditure is set to rise to £93.4 billion in 2007-08.
In the 2007 Budget on 21st March 2007,
the Chancellor re-confirmed that the
NHS was to receive
an extra £10bn this year. The investment levels for 2008-11 will be
decided in the forthcoming Comprehensive Spending Review 2007 in
the summer of this year.
There is an
expectation that current levels of growth in NHS funding will not be
sustained beyond 2008, mainly because the national economic outlook may
demand constraints on public sector spending as a whole. Therefore,
economic growth forecasts will probably restrict NHS annual expenditure
growth to 3-3.5% from 2008.
Under the present Government there has been a clear shift
in emphasis to the provision of healthcare at a primary level and
the raising of the profile of primary care in the UK. Revenue
allocations for 2006-07 onwards account for a higher percentage of NHS
spend than in previous years due to the devolution of recurrent funding
to PCTs for the payment of General Practitioners (GPs) as a result of
the new General Medical Services (GMS) contract, which is now
included in PCT revenue allocations. The 2006-07 and 2007-08 revenue
allocations represent £135 billion investment in the NHS, £64.3 billion
to PCTs in 2006-07, and £70.4 billion in 2007-08.
The UK healthcare market has become increasingly complex
over recent years as a result of new government initiatives. Planned
changes will radically change the way the public healthcare sector is
financed and managed over the next few years. A great number of changes
will particularly affect the primary care sector, including the
introduction of practice based commissioning and the opening up
of the sector to private operators through Alternative Providers of
Medical Services (APMS). Furthermore,
the major reconfiguration
and amalgamation of a number of PCTs from 303 to just 152 in
October 2006, the reduction in July 2006 of Strategic Health
Authorities from 28 to 10 and the move of many trusts to apply for
foundation trust status has also led many to reassess budgets and
priorities for their estates.
There are likely to be inevitable
changes to healthcare facilities as a result of these reforms
characterised by an overall shift of resources from hospitals to
‘practice based care’ in smaller, community-based facilities.
The private sector is increasingly operating in
partnership with the NHS,
through commissioning of NHS services – an area of activity, which is
likely to continue with the increasing devolvement of responsibility and
funding to PCTs. The Government looks set to increase its involvement
in the private sector with the construction and maintenance of new
hospitals and privately financed Treatment Centres. Providing
acute services from private hospitals in this way and raising day case
capacity is a very profitable area for the
construction industry.
Driving the acceleration in growth in the private sector
is increasing NHS demand, with NHS commissioning now accounting for
around 12.5% (£335 million) of independent acute sector revenues in
2005-06. Also driving growth in the use of the independent sector by the
NHS in 2005-06 was the
Independent
Sector Treatment Centre (ISTC)
programme, which has begun to address the problem of NHS waiting-lists.
Going forward, NHS commissioning will accelerate as the
new second wave of ISTCs become operational. However, the NHS’s scale of
contracting in the medium term has become less certain following the
cancellation of 9 second wave ISTC schemes in April 2006, with the rest
being delayed by up to a year. However, revenue from the two ISTC waves
is still on target to reach in excess of £1 billion, which will add
around one third to the value of the existing independent acute medical
and surgical market.
The NHS has the largest capital procurement programme
of any Government department, with sustained increases in NHS capital
expenditure of 140% recorded over the period 2003-2008. Capital
expenditure levels now stand at around 5% of NHS net revenue in 2005/06
and are set to reach £6.1 billion by 2008 and £8.1 billion in 2010.
The total value to contractors of new healthcare work in
both public and private sectors stood at around £3bn in 2006,
of which public sector work accounted for around 50%. Healthcare work
output (public and private sectors) declined in 2006 by around 4% due to
continued pressure on NHS trust budgets and delays surrounding a number
of PFI hospital projects.
Public sector healthcare output began to fall in 2005 -
by 12% - and continued to fall in 2006 declining by 19% to £1.5 billion
from £1.8 billion in 2005. New public healthcare output is forecast
to be subdued at least until 2011, as the Government tightens its
purse strings and continues to prioritise education over healthcare.
The pace of growth is likely to moderate and healthcare
expenditure beyond April 2008 will be set within the framework of
the next 2007 Comprehensive Spending Review, which is expected to
allocate less money to new hospital programmes.
The acute hospitals programme has been in doubt ever
since the Government announced a major review of the programme in 2005,
driven by a shift in healthcare provision from the acute to the primary
sector.
Both the NHS LIFT and Procure21 schemes
have suffered, as Trusts struggle with major funding problems, brought
on by the “Payment by Results” initiative. Further complications
have arisen due to the restructuring of the NHS which has seen a
number of primary care trusts amalgamate. Furthermore, the Government’s
£750m Community Hospitals Programme is also now in doubt,
although the
first four schemes although small in comparison to major
PFI schemes - ranging between £5m and £26m - were given the go-ahead in
December 2006.
The outlook for healthcare construction work in 2007 is
likely to remain subdued, with the P21 programme, in particular,
continuing to suffer from a number of setbacks, including the exit of a
number of major contractors from the scheme, delays in the release of
funds for new schemes and the re-organisation of PCTs leading to the
postponement of a number of new projects. However, on 3rd
April 2007, the Government announced that the P21 Framework was to be
extended by a further two years from September 2008 to September 2010.
Similarly with NHS LIFT, the £120m Sustainable
Communities in Kent LIFT scheme was cancelled in 2006 after the
three primary care trusts involved amalgamated into two and reviewed
their budgets.
Existing Lift schemes are also being affected as new work
is put on hold as other trusts reorganise and review their budgets.
In
Wales,
however, the outlook is better.
In May 2005, the National
Assembly for Wales published “Designed For Life: Creating
World Class Health And Social Care For
Wales In The 21st Century”
setting out its strategies for health and social care to 2015. From the
financial year 2007-08 it is anticipated that approximately £200m per
annum will be available for major capital projects in Wales. In
Northern Ireland,
the outlook is similarly optimistic, with the acute hospital market
identified as a growth area, with capital investment of £2.7bn earmarked
for acute hospital developments over the next five years.
In addition, the
Department of Health is running a primary community care initiative,
worth £550m with projects let either as performance-related partnerships
or through a LIFT type model.
In recent years, although there has been a marked
increase in investment in acute hospitals, this is now likely to change
as more care is to be provided in “community” settings. This heralds an
overall shift of resources from hospitals to smaller, community-based
facilities. As a result, the focus is now on Alternative Procurement
Initiatives (APIs) which aim to encourage partnering and reduce
programme times. The Government is now also questioning the
viability of the PFI route and has advised all trusts
‘to
ensure PFI is used only in those sectors where it is appropriate’.
Going forward, PFI will not be considered appropriate for individually
procured projects with capital expenditure under £20 million, which are
expected to be procured using P21. Private finance solutions for primary
care premises, particularly in inner city areas, are expected to be
developed via NHS LIFT.
For suppliers and sub-contractors, the healthcare market
is a growing one. Although the major contractors prevail in the larger,
complex, projects, there remain many opportunities for regional and
medium sized companies both as sub-contractors and also as prime
contractors for smaller sized facilities through NHS LIFT and Procure21.
