hfmabriefing Contributing to the debate on NHS finance July 2013 Your NHS: NHS finance for beginners A simple explanation of how the National Health Service is funded across the four UK nations Introduction The National Health Service (NHS) is the world’s which sets out the guiding principles of the NHS largest publicly funded health service. alongside patients’ rights. The NHS was created on 5 July 1948 to provide free This document has been created by the Healthcare healthcare to the whole population, based on the Financial Management clinical need for treatment and not the ability to pay. Association (HFMA) to provide a simple explanation of: Since then, the NHS has grown to be the fourth largest employer in the world and now employs ● How NHS services are about 1.7 million staff across the United Kingdom. paid for The NHS deals with more than one million patients every 36 hours. ● How the money flows through the different The NHS has changed considerably since its health systems of creation 65 years ago and is continually being England, Scotland, Northern reorganised and reformed. However, its founding Ireland and Wales. principle – that treatment should be provided to patients for free at the point of delivery – remains More detailed explanations can be found in the true to this day. This is part of the NHS Constitution, HFMA’s Introductory Guide to NHS Finance. Shaping healthcare finance... How is the NHS funded? CONTENTS Who pays for the NHS? Who does what? p3 Running a service as large and extensive as the NHS costs a lot of money. In 2012/13, the total amount Healthcare in Scotland, the government spent on health in England was Northern Ireland and Wales p5 about £110bn, considerably more than was spent on other public services such as education, Other sources of transport or defence. information p6 The public (people like you and me) and businesses an operation - costs the UK government, and pay for public services via taxation. The income tax therefore the general public, money. The cost of and national insurance contributions from our treatments vary due to a number of factors, such as salaries, as well as other taxes such as corporation the complexity of the treatment, where the tax and value added tax, go directly to the treatment takes place, how many health government to pay for public services including professionals are involved, and whether any the NHS. diagnostic tests or drugs are required. To give you an idea about the amounts involved, a hip replacement Because the government spends public money, it is can cost between £4,000 and £7,000. very important that the money it receives is distributed fairly and spent properly. This is also true Many people do not realise that if you fail to attend for the money spent by the NHS. an appointment, no matter how big or small your treatment, it still costs money. For every How is the money distributed? appointment a patient fails to attend, the NHS has The government decides how much money to less money and time to spend on services for their allocate to public services in a Spending Review. other patients. In a Spending Review, the Treasury (the number- crunching department within the government) There is increasing pressure on NHS resources decides how much money to allocate to each public because people are living longer and more people service per year, based on the amount of money are living with chronic diseases such as diabetes. available and how important a public service is Historically, the NHS has enjoyed annual funding considered to be. increases above the level of inflation to help keep pace with the increasing demand for services. Because health is currently a priority, its funding is However, recent economic pressures mean that the greater than any other area except social protection, funding available to the NHS is expected to stay which includes welfare benefits. more or less the same for the foreseeable future. This means that there will be no above-inflation The arrangements for funding health services in increase in funds to pay for the rising demand for Scotland, Northern Ireland and Wales are different. health services. NHS organisations are always The Treasury allocates funding to the three looking at ways to become more efficient and to countries. It is then allocated across their own public deliver more for the money they receive, but it is services, including the NHS, as they see fit. particularly important at the moment. Now we know how the NHS is funded, we need to How do we know NHS money is spent properly? look at how the money it receives is spent. Because of the amount of taxpayers’ money that is spent on the NHS and the pressure on NHS How are NHS funds spent? resources, we need to know that it is being Most money spent in the NHS goes on paying the used properly. salaries of the people that work in it (about 70% in a typical hospital). The rest of the money is spent on Although the NHS is usually referred to as a single areas such as drugs, medical supplies, equipment, organisation, it actually comprises a wide range of energy and building maintenance. different bodies with specific responsibilities. Each organisation is ultimately accountable to the Each and every treatment provided by the NHS – government but functions independently. To ensure from a check-up with a GP to going to hospital for that NHS organisations are performing as they hfmabriefing • July 2013 • Your NHS Page 2 How does money travel from the government to the patient? The diagram shows the different organisations that HFMA money ‘flows through’ on its way from Parliament to the patient receiving treatment. The role of each of The professional body representing NHS these organisations is set out below. finance for more than 60 years: ● Parliament Parliament is the highest legislative body and sits • Providing high-quality at the top of the accountability tree. Parliament advice to members should, and are spending their money properly, holds the secretary of state for health to account and the wider there are many systems, processes and rules in place. for the Department of Health’s functioning and use healthcare community This ensures that our health system is run effectively, of resources. with integrity and that taxpayers’ money is • National and local appropriately spent. ● Secretary of state for health networks to promote The secretary of state for health is politically best practice and Who does what? accountable for the NHS and for the resources innovation in financial management and allocated to health and social care in England. The leadership In this section we will look at the structure of the secretary of state is an MP and member of the NHS in England, Scotland, Northern Ireland and Cabinet and is chosen by the government. • Exerting influence Wales and how money flows from the government to shape the wider to the organisations providing NHS services. ● Department of Health healthcare agenda The Treasury transfers money to the Department of The NHS in England Health, which is the organisation responsible for www.hfma.org.uk Significant changes have been made to the NHS in leading the NHS, public health and social care in England as a result of the coalition government’s England. The Department of Health keeps a small Health and Social Care Act 2012. The diagram below amount for its running costs and for its own budget, illustrates how the NHS is structured following the including for the new organisation known as Public reforms completed in April 2013. Health England. NHS STRUCTURE FROM APRIL 2013 Parliament Secretary of state Key for health Funding Department of Health Accountability (incl Public Health England and other arm’s length bodies) Licensing and registration Care Quality Monitor NHS England Commission (incl (sector regulator) Healthwatch England) Local authorities Clinical (health and commissioning Contracts Providers wellbeing boards) groups Accountability for results Local Healthwatch Patients and public hfmabriefing • July 2013 • Your NHS Page 3 As part of the changes to the NHS, the responsibility and funding for public health has been handed to ARM’S LENGTH BODIES local authorities, with Public Health England set up in the Department of Health. However, the majority Some of these bodies act as independent of the Department of Health’s funding is issued to a regulators of the NHS: new arm’s length body called NHS England and the ● Monitor is the sector regulator for healthcare rest to other smaller arm’s length bodies. in England. Its role is to protect and promote patients' interests. Monitor is responsible for ● Arm’s length bodies licensing healthcare providers and setting NHS The Department of Health allocates funds to a prices (with NHS England) number of arm’s length bodies. These are standalone ● The Care Quality Commission (CQC) checks finance national organisations that exist to carry out specific whether hospitals, care homes and care services just got roles under the categories of regulatory, public are meeting national standards. welfare and standards on behalf of the Department easier… of Health (see box, above right). pharmacists and opticians. NHS England also commissions specialised services that are provided HFMA’s publications ● NHS England regionally or nationally, such as transplant surgery. and training packages NHS England is a new arm’s length body formed as Guidance on NHS part of the changes to the NHS. The main aim of NHS England’s other role is to authorise and support finance for finance NHS England is to improve health outcomes for the new clinical commissioning groups (CCGs). It and non-finance people in England.