The Department of Health’s director general of finance has warned the NHS that it must make urgent improvements in quality and productivity. David Flory told NHS finance managers at the recent Healthcare Financial Managers’ Association conference in London that the NHS will have "to deliver efficiencies and productivity like we have never done before."

Flory’s warning emerged as hospitals were informed by the DH that they will only receive a basic 1.7 per cent increase in the NHS national tariff price the NHS next year and no more than 1.2 per cent the year after.

However, primary care trusts (PCTs) will receive an average 5.5 per cent a year increase in the cash to buy the care.

Quality bonuses
Hospitals and other NHS services covered by the tariff will be able to secure an additional 0.5 per cent by hitting quality standards, as introduced in Health Minister Lord Darzi’s next-stage review High-Quality Healthcare For All. However, the below-inflation increase in the tariff will put huge pressure on NHS trusts to improve productivity before a significantly reduced spending growth that will follow after 2010.

The new tarff prices will of course also apply to private sector companies who deliver care for NHS patients.

Hitting the waiting list?
In recent years, the NHS has seen significant improvements in reducing waiting times to a sustained and historically low level. The target of reducing waiting times for elective hospital care to 18 weeks by the end of this year has been broadly achieved. However, unless the NHS can begin to make serious progress on improving productivity, these reductions in waiting times could come under threat.

Managing the surplus
Health Secretary Alan Johnson has indicated yesterday in a statement to MPs that the NHS hoped to carry over about £1 billion of its present £2 billion surplus into the forthcoming lower-growth financial years. Only £800 million of the existing surplus would be drawn down over the next two years. The semi-autonomouis NHS foundation trusts, autonomous of direct Whitehall control, also have surpluses, which aggregatedm form another £1.5 billion. Their regulator Monitor is pushing FTs to begin spending this money.

The policy decision to carry over £1 billion on what will by then be a £110 billion budget would help "deal with the days when it rains hard," Mr Flory told finance directors, adding that the NHS had to "get fit for the tough years" to come. He also suggested that NHS will have to deliver "a decent part" of the £5 billion of extra efficiency savings that the Treasury is seeking from across government in 2010.

The FT speculates that the NHS will be lucky to see 1 per cent a year real growth after 2010 - a fraction of the 7 per cent increases of recent years and the 3 per cent current level.

However, Mr Johnson, with an eye on the longer term, described drawing down only £800 million of it as "prudent". He also told ministers that "substantial savings" from increasing the quality of care and reducing waster and errors were necessary.

Office for National Statistics data show that NHS productivity fell 2.5 per cent a year between 2001 and 2005, though the DH argues that the measure does not adequately reflect quality improvements, or the NHS’s large increases in staffing since 2000.