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National Health Service History

Geoffrey Rivett

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A guide to the NHS

Geoffrey Rivett


This guide provides an insight into the NHS as it currently is, although difficult to maintain up-to-date at a time of organisational change as at present.    It was last modified in April 2014.  It was originally written to help overseas visitors who might not appreciate how 60 years of planning had shaped the NHS in a way not found in other systems.  It could be useful for anyone needing a quick account of the service.  It covers England, the other UK systems being different - and increasingly so.  It mentions how the service works, some of the problems it faces, its priorities and how it is monitored. Each new government changes some things, often NHS organisation. The guide is about the current situation, not the 60 year history of the NHS, there being other sources for this. [1]

Established in 1948, the object of the NHS was to provide a comprehensive health service to improve the physical and mental health of the people through the prevention, diagnosis and treatment of illness.  An introductory booklet [2] said the NHS would "make all the health services available to every man, woman and child in the population, irrespective of their age or where they live, or how much money they have; and to make the total cost of the Service a charge on the national income in the same way as the Defence Services and other national necessities."  This has hardly changed since.  The funding almost exclusively from national taxation is virtually unique in the western world. Family doctors have always been independent contractors, often owning their own premises.  Hospital services have, until recently, been provided in state owned facilities by staff receiving NHS salaries.  Increasingly private sector organisations and charities are providing services under contract to the NHS.

Topics covered

Clinical issues

  • Developments in medicine
  • Health care's effects the organization of hospitals           

The providers of health services in the NHS

Health Service Policies

How the NHS is structured

Health service resources

NHS Planning

Monitoring, inspecting and regulating the NHS

The Care Quality Commission

Clinical issues

World-wide the pattern of diseases changes continuously. The provision of health services is a "wild problem" as the issues shift with time, and no sooner is one problem solved than another emerges.  That is part of the its fascination.

Rheumatic fever and the resultant  rheumatic heart disease have all but disappeared.  Drug therapy has reduced tuberculosis substantially and women no longer die in their thousands in childbirth or after a septic abortion.  Appendicitis and bleeding stomach, and duodenal ulcers are far less common. Medical science led to immunization that has virtually eliminated infections diseases of childhood, so that we have largely forgotten the ravages of polio and measles.  Other conditions, such as AIDS have appeared. The deaths from road accidents are much the same over 50 years in spite of the increase in traffic. People are healthier and live longer so the care of chronic disease such as arthritis and the problems of the elderly - cancer and dementia - are more significant. There is debate about how far medicine or social changes have been responsible for this. Probably it is 50 : 50. “Choose your parents well and eat healthily” is undoubtedly good advice.  Affluence may have eliminated some conditions such as rickets but it has influenced others such as alcoholism and obesity (which may require new forms of surgery). Ethical issues have always existed, but genetic medicine and fertility treatment have given these a new twist. Air travel aids the spread of disease and sometimes brings in infected food products. Immigration brings other conditions into the country, for example thalassaemia.  A significant number of cases of AIDs (particularly of heterosexual origin) in England come from areas with a high level of infection.  Bacteria continually adapt and find new opportunities

As the disease pattern has changed, so has the capacity to help.  Sometimes a disease, for example diabetes, can increasingly be handled outside hospital.  Sometimes the movement has been from primary into secondary care.  Surgery for arthritis and heart disease made these conditions appropriate for hospital.  New forms of treatment spur new activities for the NHS.  As treatment becomes easier, as in the case of keyhole surgery, more people come forward for care, increasing costs and activity.  Historically, the introduction of anaesthesia in the 19th century trebled the number of operations within a month!  While there is pressure to trasfer care  into the community, particularly for older people with multipe chronic conditions, this is often hard to accomplish.

Proponents of new forms of care may argue that in the long run they will save money.  This is often a fallacy.  We save people from dying cheaply when young and as a result they die more expensively later on, sometimes after several previously lethal conditions have been treated. Something like half of the entire lifetime costs of an individual to the NHS are in the last month or two of life.  So the introduction of new drugs, from penicillin to Aricept, has increased costs.  Technology in the imaging department (e.g. MRI scanning) and in treatment (e.g. interventional radiology and angioplasty) have increased bills not just immediately but in the future.

Health care affects the organization of NHS hospitals

200 years ago when neither the local doctor nor the hospital could do much, the way health care was organized hardly mattered.  Once anaesthesia and aseptic surgery were available, hospitals became important and by the early years of the 20th century the idea of a district hospital providing all usual forms of hospital care for a local population was accepted.  The introduction of motor ambulances in the 1914-1918 war encouraged the transfer of serious cases and by the 1920s it was realized that some forms of treatment, for example radiotherapy for cancer, could not be provided everywhere.  University and specialist hospitals were the answer. Continually increasing specialisation has accelerated this process.  For example general surgeons gave up orthopaedics and uro-genital surgery.  Hospitals then needed three surgeons, not one.  Cancer was once largely a matter for the surgeon but now it requires the surgeon, radiotherapist, oncologist - and the MacMillan nurse.  To provide a service round the clock needs five of each specialty, not one.  Patients may have better outcomes and leave hospital sooner but the hospital staff multiplies like rabbits.  Our more leisured society also affects this. Doctors, many women with family commitments, are no longer expected to work all hours of the day and night.  Indeed European Work regulations embargo long hours, even were tired doctors safe doctors. If the staff is not expanded hospitals will not provide good care.

Changes in care include the continually increasing role of investigations and steady reduction in length of stay so day/ambulatory care is now common.  The proportion of a hospital devoted to wards falls while the area of the imaging and laboratory departments increases.  We need fewer beds.  The concentration of work on fewer hospitals that are better equipped improves patient outcomes. The report [3] on health services in London (2007) by Lord Darzi when a Minister is leading to major reconfiguration of the service both in the capital and elsewhere in England. It has speeded the centralisation of major trauma care, and the centralised treatment of strokes and heart attacks. Reconfiguration of services used to be a responsibility of regional health authorities or Strategic Health Authorities.  The 2013 reorganisation removed the SHAs and the primary care trusts who had the power to plan, and there is currently a vacuum.  Hospital trust mergers, the expansion of Academic Health Science Centres and the ambitions of the new central commissioning organisation, NHS England, may fill the gap.

Providers of care

The passing of the National Health Service Act 1946 provided the legislation for the NHS which came into being on July 5th 1948.  The current framework in England and Wales set out in the National Health Service Act 1977 was modified substantially by the Health and Social Care Act 2012 . The NHS Acts give no one any right to anything – the Acts are framed to lay on the Secretary of State the duty of providing services with aims – but not necessarily aims that must be achieved. Additional Acts are passed from time to time, for example when there is a major reorganization of the NHS structure and finance that needs parliamentary agreement.  The Health and Social Care (Community Health and Standards) Act established NHS foundation trusts, the Commission for Health Audit  and Inspection (later the Healthcare Commission) and the Commission for Social Care Inspection.

Under the 1977 Act, the NHS is essentially split into two parts.

The family health services, i.e. the services provided by family doctors, general dental practitioners, ophthalmic opticians and chemists. The provision of health care in hospitals and also community health services, e.g. services provided by midwives, health visitors and clinics. Primary care services (Family Health Services)

In the UK primary care is crucial.  The whole system is based on it, access to hospital services, save in an emergency, is through the GP.  As far as possible care is delivered outside hospital, and clinical pathways are designed with this in mind.  Primary care ensures that people will receive a good service wherever they live, provides a beneficial continuity of care, and is cost effective.  Primary care physicians influence who is referred to hospital (the gatekeeper function).

Primary care services are provided by general practitioner practices, dentists, pharmacists and opticians. The majority  are independent contractor but an increasing number of GPs are salaried. There are something like 32,000 GPs in England, the numbers of which are slowly increasing.  The work undertaken in primary care has changed steadily since the NHS began. GP Lists have steadily fallen in size, and consultations are longer - perhaps 10-12 minutes - than was the case.  GPs see far less serious acute illness such as TB and do little maternity work now, but undertake substantially more care of chronic diseases and health promotion.  For 40 years premises have been improving and GPs have been working with progressively more help, nurses and others.  The trend to larger practices or federations is continuing.  General practice computerisation of record keeping and prescribing is complete and leads the world. Dental services under the NHS are less comprehensive and sometimes difficult to obtain.  Similarly much optical work is now undertaken privately.

Most GP practices are paid to carry out specified duties under a national contract for General Medical Services.  A contract introduced in 2004 allowed practices to transfer responsibility for providing some services – including out-of-hours care.  A second contract is used by about half the GPs. The NHS (Primary Care) Act 1997 allowed for the establishment of Personal Medical Services (PMS). This provides more flexibility for practices to work in different ways and develop specific services for local needs.  Public respect for GPs is less than it was, the tipping point being their abandonment of out of hours responsibilities.

Since 2013, legislation establishing Clinical Commissioning Groups has given GPs extensive influence on the placement of contracts for hospital services, and for their nature.

Secondary care -  hospitals and NHS trusts

The NHS inherited a disparate collection of hospitals and over 60 years these have been brought into a system based on an early decision to aim for district general hospitals serving natural areas of population, supported by university and specialist hospitals at a greater distance.  The Hospital Plan of 1962 was explicit about this, and subsequent plans have taken account of the changing distribution of the population, and developments in medical science. This is quite unlike the situation in countries such as the USA where hospital development is driven more by the market than by planning based on health care needs.  Revenue money can be directed through the placement of contracts, and there is supervision of capital spending that can be either from public funds or from private finance.

Most people reach hospital by GP referral, though accident and emergency departments, or NHS Direct (a phone and web based helpline).  Services are provided by NHS trusts, increasingly foundation trusts which have greater responsibilities, more freedom of action and local governors.  They work within a legal framework that lays down certain financial, quality and partnership requirements. There may be more than one hospital in an NHS trust. Some trusts also act as regional or national centres of expertise for more specialised care, and many are attached to universities and help to train professionals. Trusts may also provide services in the community – for example through health centres, clinics or in peoples’ homes. Trusts may merge, either with others of the same nature or to expand services, for example an acute hospital trust may take on community health services. Over the last ten years the quality of care has become far more of an issue that it was previously.  Trusts have obligations to provide quality care, as well as obligations to stay within their budgets and meet targets for the speed of treatment.

Hospitals and community services are run by some 300 or so Trusts, the number changing with mergers and restructuring.  For ten yers the aim has been for all trusts to achieve "foundation" status, however to so so they had to demonstrate good govbenance and the ability to work within their budget.  A little over half trusts have achieved this.  Many have not and will not and are now the responsibility fo the NHS Trust Development Authority.  Many of these are in great financial difficulty.

NHS foundation trusts (FTs)

NHS foundation trusts first established in 2004 are approved by an independent regulator, Monitor.   FTs differed from earlier trusts primarily by having a Council of Governors as well as a Board of Directors, the former representing the interests of the community and of local partnership organizations.  They have financial freedoms, earned by a record of financial probity and are legally independent organisations.  They are not allowed to sell off or mortgage NHS property and resources needed to provide key NHS services. Each Foundation Trust has an individual constitution within nationalguidance designed to meet its own circumstances. 

Foundation Trusts are accountable to an independent regulator, Monitor, which is accountable directly to Parliament. Monitor watches to ensure that each trust is keeping to its budget and providing the services that were agreed.  NHS foundation trusts are freer from central government control, manage their own budgets and shape the health care services they provide to reflect local needs and priorities. They are inspected by the Care Quality Commission and have freedom to develop new solutions to long-standing problems. They deliver care for their population, purchased by locally commissioners.

Health Service Policies

Core principles

Underpinning the NHS is a set of core principles. In 1952 Bevan wrote "The essence of a satisfactory health service is that the rich and the poor are treated alike, that poverty is not a disability, and wealth is not advantaged." (In Place of Fear, a collection of essays).

Some things have been modified over the years, for example in 1948 the NHS owned almost all the capital stock from which hospital services (but not GP services) were provided.  Now it is considered less important to provide the services by purely NHS owned facilities.  The Department recently expressed the core values as

        A universal service for all based on clinical need, not ability to pay.

        Providing a comprehensive range of service

        Shaping its services around the needs and preferences of individual patients their families and their carers

        Responding to different needs of different populations

        Working continuously to improve quality services and to minimise errors

        Supporting and valuing its staff

        Public funds for healthcare will be devoted solely to NHS patients

        Working together with others to ensure a seamless service for patients

        Helping to keep people healthy and working to reduce health inequalities

        Respecting the confidentiality of individual patients and providing open access to information about services, treatment and performance

The NHS Plan & the White Paper and the Health and Social Wellbeing Act [4] [21}

In 2000 the Labour Party published a ten year plan to reshape the NHS in England. It aimed to give give more power and information to patients, increase capacity with more hospitals, beds, doctors and nurses with a substantial expansion in medical and nursing education, reduce waiting times mainly through the use of targets, introduce new regulatory and inspection authorities, and improve the cleanliness and facilities in hospitals.  These aims were aided by the largest increase in spending that the NHS had seen.  The growth rate rose to over 7% a year but the recession from 2008 brought austerity to the NHS.  Labour indulged in repeated organisational changes but better systems of handling care ( “clinical pathways”) continued to improve care irrespective of the many changes in governance, to see that the right thing was done at the right time, all the time.

The Conservative Lib/Dem government introduced further modifications  in Equity and Excellence, liberating the NHS [9]  The Health and Social Wellbeing Act had a messy passage through Parliament and few have any enthusiasm, indeed any respect, for the changes that took place.  It led to the abolition of special health authorities and primary health care trusts.  The commissioning framework changed, with greater power being given to GPs through clinical commissioning groups.  The structure is complex and it is seldom clear where power and authority lies.  While Ministers maintained that they wished to devolve decision making, they have not done so.  One result has been to make it easier for private providers and charities to tender for services, for example community nursing services.

National Priorities

Historically there there has been a raft of statements about service improvement, for example in the 1960s mental illness and mental handicap services received much attention. (These diagnostic labels are now out-dated).  The major causes of avoidable ill-health and premature death, cancer, coronary heart disease and stroke, and mental health were listed as priorities both in The Health of the Nation (1992) [5] and in the white paper ‘Saving Lives: Our Healthier Nation’ of 1999.  Priorities have barely changed since.  Stress is placed on smoking cessation, obesity and sexual health. Health inequalities, the higher mortality rates of poorer people, are a more recent concern.  Key documents are regularly issued that outline NHS priorities.

National standards – The National Service Frameworks (NSFs) and NICE

As new providers have emerged and patients have been encouraged to exercise choice, it has become essential to ensure that national standards are observed. A range of measures to raise quality and decrease variations in service were introduced in 1998 by the White Paper A First Class Service [6].  These included National Service Frameworks (NSFs), evidence-based programmes spelling out what patients can expect to receive from the health service in a major area or disease group. They are implemented as part of trusts' local delivery plans.  NHS England, the central NHS commissioning board, also issues priority statements.

National Institute for Health and Clinical Excellence (NICE)

NICE is a national body set up in 1999 as a special health authority to promote high quality of treatment and technology and the effective use of available resources in the NHS. It is the independent organisation providing national guidance on the use of specified medicines and treatments and the care and treatment of NHS patients with specified diseases. NICE tries to avoid treatment being dependent on where you live. In addition to its three traditional types of guidance NICE is now developing national standards for conditions such as dementia and stroke.

        whether a particular medicine or treatment is recommended for use within the NHS in England and Wales – Technology Appraisals

        the appropriate treatment and care of patients with certain specified diseases and conditions within the NHS in England and Wales – Clinical Guidelines

        Whether interventional procedures used for diagnosis or treatment are safe enough and work well enough for routine use – Interventional Procedures Guidance.

How the NHS is structured

An organizational structure should be requisite (reflect) to its function and the function of the NHS is to deliver comparable good care throughout the country.  A hierarchical system is therefore needed, rather than a series of autonomous local bodies.  The structure has been modified repeatedly over the last 60 years, sometimes seeming to come full circle.  On 1 April 2013 the organisation structure changed following the Health and Social Care Act (2012), involving who makes decisions and who spends the money.  Within a health service that has a purchaser-provider split, it is increasingly easy for private providers to enter a competitive market for the provision of NHS services.  A chart of the the new structure is below. 

 nhs structure

source - BBC website 2012 

The separation of those whose function is to purchase or commission health care and those whose function is to provide it has continued since 1990, but has been questioned because of its costs, perhaps some 14% of budget. 


The Parliament in Westminster passes primary legislation (Acts of Parliament) for the health service in England and Wales and secondary legislation (Statutory Instruments) for England and Wales may be laid before it.  The legislative process involves both Houses of Parliament and the Monarch.

There has always been, and currently is, active debate about how far the NHS could be “freed from political interference”.  However ultimately the NHS is funded by the taxpayer.  This means it is accountable to parliament. Currently, with the exception of NHS foundation trusts, it is managed by the Department of Health which is directly responsible to the Secretary of State for Health.

The Secretary of State for Health

The Secretary of State for Health is a member of the Cabinet and has overall responsibility for the work of the Department of Health. He/she works together with a group of ministers for health and the Permanent Secretary/NHS Chief Executive. He/she delegates responsibility of the NHS to the Accounting Officer who is accountable both to the Secretary of State and directly to Parliament. A similar dual accountability role applies to chief executives of strategic health authorities who are responsible both to their boards and, via the accounting officer, to Parliament. The Accounting Officer is responsible for the propriety and regularity of public finances in the NHS; for the keeping of proper accounts; for prudent and economical administration; for the avoidance of waste and extravagance; and the efficient and effective use of all the resources in his charge. The Coalition government is establishing a  NHS Commissioning Board, and aims to reduce "the power of Whitehall".

Department of Health

The Department of Health’s purpose is to support the Government to improve the health and well being of the population. It is responsible for modernising the NHS as well as improving standards of public health.

Its role is:

        setting overall direction and leading transformation of the NHS and social care

        setting national standards

        securing resources and making major investment decisions to ensure that the NHS and social care have the capacity to deliver

        working with key partners to ensure quality of service such as the strategic health authorities and the Care Quality commission (CQC).

It does this by providing a Mandate and frameworks to NHS England,that guides NHS England in its allocation of resources and its strategic directions.

There are a number of special health authorities and other bodies which are either part of the NHS or closely associated with it. They include the NICE, the Health Protection Agency (HPA) and Prescription Pricing Authority. These organisations are either accountable to the Secretary of State, or have formal agreements with the Department of Health. In general they provide national services.

NHS England -

Commissions services that require a larger population base and oversees the process of commissioning.  It has four regional groups, arms of NHS England that will supervise different parts of England..  It commissions primary care and specialised services. Better results are usually obtained for rarer conditions if the patients are concentrated in centres with particular expertise.  Not every district general hospital can have an ENT or an ophthalmic service, let alone cardiac surgery and radiotherapy.  Such specialised services are generally of high cost services, but with low volume use. For example services for rare cancers, are provided from a small number of centres.

Clinical Commissioning Groups

Clinical Commissioning Groups (roughly 200 innumber), are responsible for planning and securing health services and for improving the health of the local population, superseding primary care trusts.  They are accountable to the NHS England, have tgwo thirds of the NHS budget, and advised by a variety of local bodies, in particular Health and Wellbeing Boards that will coordinate commission by by local authorities and the NHS.

Health service resources

Initial misdistribution of money and services

When the NHS began there was an uneven distribution of money spent on health care with the south receiving far more than the north, and cities than the country.  GPs were poorly distributed.  There were some over doctored areas and other under doctored ones.  Much effort has gone into the correction of this, but there is still a disparity in the number, quality and accommodation of GPs in different areas.  Conurbations generally do worst.  Similarly there was a disparity in hospital services – here the large cities did best in terms of the number and quality of hospitals.  Equity being a corner stone of the NHS – we are all tax payers - many mechanisms have been used to improve this.  In the 1970s, under Labour, the Resource Allocation Working Party [7] started the process of moving money to the north.  Advice on resource allocation still guides the allocation of money by NHS England to the clinical commissioning groups.


The quality of NHS premises has long lagged behind those of other western countries.  In recognition of this a major building programme started with Enoch Powell’s Hospital Plan (1962) [8] and has been accelerated in recent years.  It affects both the hospitals and primary health care.  Latterly it has been largely financed not directly by the Treasury, but by the Private Finance Initiative (PFI), or public-private partnership.  This has meant that NHS building costs do not fall on the normal government balance sheet, but that the NHS is essentially leasing buildings that are designed, built and operated by the private sector.  While there are some advantages in using the experience of the private sector in getting hospitals built rapidly, the ultimate cost is high and it may be difficult to change buildings as requirements change.  Many trusts will be financially challenged by PFI contracts over the coming years.


The NHS is a massive employer with some 1.4 million staff in the UK as a whole of whom some 400,000 are nurses.  In many areas it is one of the biggest local employers.  It takes a high proportion of some age groups, for example young women into nurse training.  Because of the demands of the NHS, skilled immigrants have often been welcome.  Nurses from the Indian subcontinent and the Philippines and doctors from overseas have often kept the NHS running.

Because the NHS is virtually a monopoly employer, and because the state pays much of the cost of educating doctors and nurses, government has always been involved in deciding the numbers in training, attempting to match training places to the likely requirements of the NHS.  Only too often it has got the numbers wrong because it takes about 15 years to train a consultant and 4 years or more a nurse.  Demands change over this period and require changing staff skills.  Modernising Medical Careers – improving the way doctors are trained to become specialists or GPs - is the latest of many attempts to match training to new clinical requirements.  It has run into substantial difficulties.  For nursing, the Department of Health and the Nursing and Midwifery Council have been consulting on modernizing nurse education – a follow-up to Project 2000 a decade ago - aiming for a new syllabus in Autumn 2011.  A major new pay system, Agenda for Change, covers almost all staff other than doctors and dentists. It is designed to ensure equal pay for work of equal value, to facilitate service re-design and to support recruitment and retention.

The Department of Health has devolved future much responsibility for such negotiations to an NHS employers’ body.  Consultants’  pay is still determined by an independent review body.


The NHS is funded largely through taxes levied by the Government.  The total cost in England in 2009-10 was £120 billion. Most is from income tax, some from national insurance contributions, and a small amount from private practice in NHS hospitals and other sources.  The amount of money that the NHS receives is determined by the economic health of the country and by the other competing demands on the Exchequer. Health service costs generally rise faster than the general inflation rate.  In the last few years therewas a growth spurt in the money available,now reducing to the toughest level of NHS spending for many years. The challenge is to reduce expenditure by £20 billion over 5 years. A useful paper on NHS expenditure was published as a parliamentary note in 2012.

How the money is divided up geographically

Geographically attempts have been made  to give a "fair" allocation to different parts of the England, bearing in mind differences in morbidity and mortality, labour costs and other factors, by the Advisory Committee on Resource Allocation (ACRA), an independent committee comprising NHS management, GPs and academics.  This is the successor to the Resource Allocation Working Party of the 1970s.  The formula is always challenged as unfair locally.  Scotland, Wales and Northern Ireland receive more money per capita than England.

The way in which resources are allocated is constantly being refined. Funds are allocated directly from the Department of Health. Revenue funding is allocated on the basis of the relative needs of their populations. A weighted capitation formula is used to determine each area's target share of available resources, to enable it to commission similar levels of health services for populations in similar need. The current formula has the following components:

        Hospital and community health services


        GP practice infrastructure, e.g. practice staff wages, premises and equipment

        General practice prescribing

        GP remuneration.

The components of the formula are used to adjust each primary care trust’s “crude” population according to their relative need (age and additional need) for health care and the unavoidable geographical differences in the cost of providing healthcare (market forces factor).

The weighted capitation formula is regularly reviewed.  The majority of the funding is on the basis of a recurring allocation made at the start of the financial year. Most of the revenue funding is channelled to the front line via unified allocations. These are cash limited. The rest of the funding is for family health services and is non-cash limited

Capital funding systems are changing to one of interest bearing debt and Trusts will have a borrowing limit.   Operational capital is allocated to all NHS trusts and areas. The funding is provided to maintain and enhance existing capital stock and fund small to medium sized developments. The allocation of operational capital is based on their level of depreciation.

Where the money is spent

The health service is staff intensive and more than 50% of the money is spent on acute services – medical and surgical care in hospital. 12% is spent on mental health services, 10% on services for the elderly, 5% on people with learning disabilities and 5% on maternity services. Health care for people over 65 years old accounts for around 40% of the total expenditure.

Finance for the NHS

For the last 15 years there has been a "purchaser-provider" split with one group determining the services required, and another providing them under contract.  NHS trusts get most or their income from several commissionersdealing with local services, services that have to be planed across a region, or nationally.  A small percentage of their income is from private health care. They also receive funding to provide training for health professionals and benefit from income-generating schemes such as shops and car parking. NHS trusts have to break even. If a trust fails to do this it may agree a recovery plan with the NHS Trust Development Authority or in the case of foundation trusts with Monitor.

Changes to the flows of money

Recently there have been changes to NHS ‘financial flows’ with trusts being paid a standard national tariff for the activity they undertake in a given year on a cost per case basis.  To drive efficiency the tarrifs ae regularly lowered.  Trusts whose costs are above national averages need to make efficiencies to break-even. This system is known as payment by results (PbR) though in fact it is payment by activity.   Patient Choice is increasingly enabling the patient to choose the provider at the time of referral. All these changes impact on the way funds flow around the NHS and the financial wellbeing of hospitals.

Financial crises

The economic downturn has had a major effect on NHS funding since around 2010.  During much of the Labour government's period in power the NHS saw steady and substantial increases in resources, much of which was poorly spent.  Since then there has been a need to save some £20 billion over five or more years and the allocations have been tight, and inadequate to fund the expansion of services and their quality.

NHS planning

While planning was a dominant theme in the NHS until the 1990s, with regional authorities and then Strategic Health Authorities taking a lead, the changes in 2013 removed the SHAs and the PCTs which were prime movers in strategic planning. The establishment of the National Institute for Health and Clinical Excellence (NICE) and national strategic frameworks have laid down markers on the organisation of services, clinical pathways and the drugs and procedures considered effective.  Planning is undertaken both by those commissioning services, and within trusts by those providing them.  Better financial information allows trusts to know how money is allocated to each specialty and whether it is in profit of deficit on specific specialty activities.

NHS England and its and four regional branches will probably take on many of the more specialised functions of the erstwhile strategic health authorities.  Other inputs into planning with be new Health and Wellbeing Boards and Academic Medical Science Centres.

Out of area treatments (OATS)

Out of area treatment arrangements cover those situations where an individual is admitted to a hospital away from home, usually as an emergency where there is no pre-arranged service level agreement in place. Funding for these ad hoc cases is built into the host PCT’s service agreement with their local hospital(s).

Monitoring, inspecting and regulating the NHS

The more that freedom is granted to local management, the more it is desirable to have an inspection and regulation system, particularly when one wishes there to be a measure of equity across the system as a whole. The system of inspection and regulation changes with the Health and Social Care Act (2012)  Monitor and the Care Quality Commission will be concerned with finance, audit and the quality of care delivered.

The arrangements for monitoring and performance management in the NHS at present are that:

 each organisation has its internal system for monitoring service delivery and trusts certify compliance to the Care Quality Commission which registers trusts and has an inspection regime

 Commissioners hold provider organisations to account for the delivery of services which they have commissioned

 Monitor is the economic regulator and has a strict compliance regime.  All Trusts will later come under is control..

Many professional organisations have registration and inspection systems, particularly as far as educational facilities are concerned.


Since the Health and Social Care Act (2012)  Monitor has become the sector regulator for health and, at a later date, for adult social care. Monitor’s core duty will be to protect and promote patients' interests. It will also have a continuing role in assessing NHS trusts for foundation trust status with a target of April 2014, and for ensuring that foundation trusts are financially viable and well-led, in terms of both quality and finances. In carrying out its sector regulator role, Monitor will license providers of NHS services in England and exercise functions in three areas, regulating prices; enabling integrated care and preventing anti-competitive behaviour; and supporting service continuity.  It has developed a failure regime for trusts that become clinically or financially unviable.

The Care Quality Commission

The Care Quality Commission was established in 2009 as a successor to the  Healthcare Commission (established in 2002) and other bodies concerned with social services.  It has had a rocky history and has not always been effective in guaranteeing safe services.  Itis an independent registration and inspection body of the NHS. It monitors how standards that are set by the Government, through its health policies, National Service Frameworks, and clinical guidance provided by the National Institute of Clinical Excellence (NICE), are being met. It:

        registers all providers of health and social services

        It reviews health care organisations in the NHS every three or four years (clinical governance reviews)

        investigates serious service failures

        reports on key issues, such as coronary heart disease and national service frameworks

        assesses and reports on performance in the NHS

        publishes data on staff and patient surveys

        jointly inspects with other bodies

        manages the clinical audit programme.

        register and inspect private healthcare provision

        conducts NHS value for money studies

        validates and publish performance assessment information and statistics on the NHS, including waiting list information

        publishes performance ratings for all NHS organisations

        publishes reports on the performance of NHS organisations both locally and nationally

        independently scrutinise patient complaints, and

        publishes an annual report to Parliament on national progress on healthcare and how resources have been used.

        inspects NHS foundation trusts and reports its findings to the independent regulator, recommending special measures where it has serious concerns about the quality of services provided.

Audit Commission

The Audit Commission is an independent body responsible for ensuring that public money is used economically, efficiently, and effectively. It is proposed to abolish it.  Its current function is the audit of local authority and NHS bodies. It is responsible for appointing external auditors to audit financial statements and to carry out reviews of governance arrangements and performance in all local authorities, strategic health authorities, trusts and other public bodies such as the police and fire authorities. In the course of producing its national studies it may send out questionnaires to collect data and visit a sample of NHS trusts. The Audit Commission may act as auditor for Foundation Trusts.

The Private Sector

Unlike many other countries, private health care makes only a minimal though growing contribution to care in the UK. Competing with a health service that is good, free and increasingly efficient is difficult.  Private organisations provide virtually no emergency services, little primary care, and are mostly concentrated on outpatient consultations, elective surgery and some forms of mental health care. Most specialists seeing patients privately spend the bulk of their time on the NHS. 

However the NHS has changed from being the provider of all NHS services to commissioning, funding, defining and monitoring some that are provided by outside organizations. There is hardly an activity within the NHS that is not now provided in some places by the private sector. Hospitals built under the private finance initiative are operated by private consortia. Independent treatment centres offer day surgery under contract to the NHS.  NHS Logistics that moves NHS supplies about is now operated by a private company.  Many GPs, of course, have always been independent contractors.  Even the function of commissioning services may be undertaken by selected firms on behalf of commissioners.


1    From Cradle to Grave, 50 years of the NHS.  Rivett G.C. 1998, London, The King’s Fund  and www.nhshistory.net.

2     The National Health Service.  1948. London.  HMSO.

3    A Framework for Action.  Lord Darzi. 2007. Healthcare for London.

4    The NHS Plan, A plan for investment, A plan for reform  2000, London HMSO

5    The Health of the Nation.  A strategy for health in England.  July 1992.  London  HMSO.  Cm1986

6    A First Class Service – Quality in the new NHS.  Green Paper, 1998, London. Department of Health.

7    Sharing Resources for Health in England (RAWP Report).  1976. DHSS. London.  HMSO

8    National Health Service. A hospital plan for England and Wales. Cmnd 1604. London: HMSO, 1962

9    Equity and Excellence, liberating the NHS   Cm 7881 London.  Department of Health.2010 .

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