Pile of money

Jon Hoeksma

A week is a long time in politics, particularly if you have to explain how much implementation of the National Programme for IT (NPfIT) will cost and where the money will come from. Over the past week the billions have been flying thick and fast.

As we reported last week Computer Weekly splashed a report on its front page saying that implementation costs would be in the range £18.6 billion to £31 billion. Predictably, rebuttals and clarifications of how much implementation will cost and how it will be funded followed.   

First, health minister John Hutton told the Today programme the existing NHS baseline IT spend of £1 billion annually will all be redirected, and fully cover all implementation costs.  Then NPfIT took a rather different tack saying that implementation would be funded by NHS IT expenditure rising from 1.5% to 4% of the total NHS budget – up to £3.7 billion a year by 2007-2008.  NHS chief executive Nigel Crisp meanwhile wrote to the Guardian offering an assurance that the necessary funding was already included in budgets.

So, is the issue of implementation costs dead in the water?  Or do questions still remain about how much it will cost to modernise NHS IT and where the funding will come from? How much of the increased funding will be centrally held and how much will have to come from trust’s local budgets?

Smoke and mirrors

“It’s all very well debating this, but it would be nice to have some idea to the nearest billion"

— Dr John Powell, head of the BMA’s IT Committee

Key supporters of the programme have told EHI they remain in the dark on where implementation funds will come from.  Dr Paul Cundy, head of the BMA and Royal College of General Practitioners’ joint GP IT Committee told E-Health Insider: “NHS IT funding is all smoke and mirrors in my view.  I genuinely don’t know whether they have factored in implementation costs."

Dr John Powell head of the BMA’s IT Committee also admitted to being confused. “I’m not at all clear. It’s all very well debating this but it would be nice to have some idea to the nearest billion."

Phil Sissons, managing director of Magic Consulting and former head of industry relations for NPfIT, said that the issue of implementation costs has been long overdue to be discussed. “Everyone has been aware of this problem but been ignoring it. Those that have some knowledge of the details and intricacies of the contracts have known this a problem for some time."

“Clearly you can’t deliver the national programme on the basis of existing budgets. The national programme funding only covers core services. The numbers just don’t add up."

Freeing up baseline spend

“The national programme funding only covers core services. The numbers just don’t add up"

— Phil Sissons, former head of industry relations for NPfIT

He said that NPfIT had always worked on the assumption that implementation costs “would come from existing NHS IT expenditure" – a position that has been repeatedly stated by NPfIT officials. But Sissons questions whether this baseline spend – covering staff costs and existing local systems – could actually be freed up for NPfIT implementation.

Sissons said that NPfIT had begun an exercise to identify what proportion could be freed up “but stopped as it found that the money was already allocated".

Dr Powell added. “Clearly some of the existing money spent by trusts on IT can be shifted over to supporting NPfIT but not all of it, otherwise how can you resource existing systems?  The minister is wrong when he says it can all be redirected."

By the time of publication the national programme had not responded to questions put by E-Health Insider on what proportion of existing local IT spend it believed could be freed for implementation purposes.

Counting the total costs

“It’s been clear that the sums of money being talked about are not sufficient to cover all of the functionality in the OBS"

— Murray Bywater, director of Silicon Bridge Research

Murray Bywater, director of Silicon Bridge Research told E-Health Insider that it had been clear for over a year that additional implementation funding would be vital. “If you look at it from a trust perspective… you sign up for this thing and what you get is an enhanced Patient Administration System replacement with order communications you have to implement yourself. It’s a free gift but with lots of additional costs."

Talking about costs Bywater said: “It’s been clear that the sums of money being talked about are not sufficient to cover all of the functionality in the OBS, £6.2 billion will not fund that.  Two or three times that amount will be needed to fund that for all trusts, and even more if you add in additional functionality, implementation and change management."

No black hole

Vice-chairman of the British Computer Society primary care special interest group, Ewan Davis, took a different view.  He told EHI: "Prior to NPfIT the NHS spent about £850 million per year on IT (less than 1.5% of revenue). The government have committed to increasing this figure to 4% by 2008 in line with the recommendation in Wanless, according to a statement from John Hutton in the House of Commons on 4 March.

“It isn’t true that the cost of implementation has not been considered and included in current spending plans"

— Ewan Davis, vice-chairman of the BCS primary care special interest group

"Given that the government are also committed to raising NHS total expenditure to £90.2 billion by 2008 my calculation is that this means that they have committed to spending about £30 billion on IT over the ten years of the national programme of which £6.3billion is already committed to the programme with somewhat less than £8billion tied up supporting existing systems. This leaves roughly £16 billion committed but not allocated, about the same amount of the supposed ‘black hole’ cited in some of the press reports.

"It should therefore be possible to fund the estimated implementation cost, albeit near the lower end of the figures suggested, within current spending plans without stripping funding from existing systems, or looking for illusory efficiency gains.

“We may think that this money isn’t enough or suspect that other pressures in the NHS may make it difficult to protect this new money for IT. However, it isn’t true that the cost of implementation has not been considered and included in current spending plans or that meeting this cost will require the diversion of resources currently allocated to other areas."

The need to mandate trusts

“The programme is fully funded. You will see a target of 3.5-4% of total. We will sit well within that envelope"

— Richard Granger, 
director-general of NPfIT

Asked how local NHS IT expenditure could be grown from its current 1.5% of the NHS budget to the level required to meet implementation costs Sissons said “The only way they can do it would be by mandating it."

One mechanism for mandating NPfIT to trusts would be to include adoption of national programme services in trust’s performance management frameworks, or setting a central target for them to increase IT spend alongside national investment.

In an interview with File on 4 this week, Richard Granger, director-general of NPfIT stressed that the programme was fully funded and targets will be set for increased IT spending. “The programme is fully funded. You will see a target of 3.5-4% of total to be spent on making the right information available to run the NHS and serve patients, and we will sit well within that envelope."  The question remains what the balance between trust and central spend will be.

Given the host of other centrally mandated targets that trusts must achieve – from waiting times to clean wards – even targets set by the centre  may not prove a magic bullet or easy to enforce. 

Evidence of benefits of investment

And even if adoption of NPfIT systems is mandated, or incorporated into  performance management frameworks, trusts are still being asked to invest in systems whose benefits have yet to be quantified or demonstrated.  This problem was highlighted in August when the Institute of Public Policy Research published a report highlighting the paucity of the evidence base for health IT investments.

The dilemma faced by trusts was spelt out by Bywater, “Savings, if they flow, will come after this huge investment. How do you fund the interim and guarantee that by spending all these billions you solve the IT problems?"

“How do you fund the interim and guarantee that by spending all these billions you solve the IT problems?"

— Murray Bywater

The 4% figure cited by NPfIT last week is attributed to the Treasury’s 2002 Wanless Review on long-term funding of the NHS, but the actual figure quoted in Wanless is “over 3%" – a doubling of existing NHS IT spend, then estimated as representing 1.5% of the total NHS budget.

As far as EHI has been able to determine, the figure of 4% was first mentioned by health minister John Hutton in the House of Commons on 4 March, 2004, in response to questions on the costs of NPfIT. “Future expenditure will form part of the ongoing financial management process within Spending Review 2004 and future envelopes.  By 2008, IT funding will be line with the levels proposed within the Wanless Review; that is, 4% of total NHS expenditure." 

Balance between national and local expenditure

When the English NHS budget reaches the forecast £92 billion by 2007-2008, 4% IT expenditure will equate to £3.7 billion a year.  At this point, the national programme will still be working centrally on its ten year plan, using ring-fenced money. The trusts will pick up some of the implementation costs for national programme systems while continuing to carry out IT work that falls outside the national programme.

The Treasury and the Department of Health will face the dilemma of how much money to ring-fence and how much to allocate for local spending.  The Wanless Review advocates ring-fencing, but this approach carries the risk of failing to inspire local ownership.  On the other hand, allocating money for IT at local level is risky too; trusts have a long inglorious history of raiding the IT money to pay for other priorities.

In conclusion, it is untrue to say that implementation costs have never been considered, but they are not easy to forecast and have not been widely discussed. For local trusts, the question of how much money will come from the centre and how much will have to be found locally is critical.