Avoiding the three icebergs that could sink the NHS

The NHS should start to use programme budgeting and marginal analysis to help decision-makers gauge the effect of reallocating resources across healthcare services, thus optimising resource allocation to improve outcomes

The evidence-based and quality paradigms of healthcare, combined with technological developments over the past 50 years, have resulted in astonishing progress, but three icebergs risk sinking the NHS:

1. Unwarranted variation – significant, unrecognised and unwarranted variation in diagnostic and treatment activity; not the result of explicit decision-making but of decades of gradual, unplanned service growth, indicating inequity as well as waste of health and care resources (money, time, space, and carbon).

2. Over-medicalisation – the tendency to overuse or misuse healthcare resources leading to interventions that may offer limited benefit and could cause harm or unnecessary cost.

3. Unsustainability – Simply piling on more resources to deliver more care, even at higher quality and efficiency, will not save the NHS from crashing.

Last year, Sir Keir Starmer said: “Reform does not mean just putting more money in […] So, hear me when I say this: no more money without reform. I’m not prepared to see even more of your money spent on agency staff who cost £5,000 a shift, on appointment letters which arrive after the appointment, or on paying for people to be stuck in hospital just because they can’t get the care they need in the community.”

The NHS needs an urgent change of course and a key enabler of this is something that was an integral part of the NHS before the Lansley reforms – programme budgeting and marginal analysis.

Back to the future: Programme budgeting and marginal analysis

“Programme budgeting and marginal analysis is an approach to commissioning and redesign of services that can accommodate both medical and managerial cultures and the widest constituency of professional, patient, and public values within a single decision-making framework.”

Programme budgeting is a means of tabulating expenditure data to inform organisations on spending patterns, identifying areas of interest and potential for review.

Marginal analysis is a tool that aids optimal decision-making by evaluating additional benefits and costs of incremental changes in resource allocation.

Applied to healthcare, programme budgeting and marginal analysis (PBMA) helps decision-makers assess the impact of reallocating resources across healthcare services and optimise resource allocation to improve patient and population outcomes.

To realise the potential of PBMA, NHS leaders must embrace allocative efficiency - identifying necessary investments and making difficult decisions to discontinue outdated or low-value services

Health expenditure benchmarking, the successor to programme budgeting, is designed for comparative analysis of healthcare spending. Although currently facing practical challenges, particularly in accessibility and data timeliness, its principle of systematic evaluation remains crucial for resource allocation decisions.

Leveraging programme budgeting to deliver population healthcare

“Population healthcare focuses primarily on populations defined by a common need which may be a symptom such as breathlessness, a condition such as arthritis or a common characteristic such as frailty in old age… Its aim is to maximise value for those populations and individuals within them.”

To deliver population healthcare, each subgroup of the population needs a system specification with clearly defined objectives and criteria for measuring progress. PBMA combined with population healthcare empowers health and care leaders to:

• Assess primary and secondary prevention services, vaccination, and screening for inequities

• Examine financial resource allocations to population segments

• Measure patient-centred outcomes rather than solely activity-based outputs

• Benchmark spending against similar populations, identifying overuse, waste, underinvestment, or inequities

• Evaluate intervention rates (e.g. diagnostics, prescribing, hospital admissions)

• Assess the carbon footprint of services provided

To realise the potential of PBMA, NHS leaders must embrace allocative efficiency - identifying necessary investments and making difficult decisions to discontinue outdated or low-value services. Continual layering of new interventions over existing ones has created inefficiencies, straining budgets.

True sustainability requires strategic reallocation, shifting care from hospital to community, leveraging digital innovations, prioritising prevention, and rationalising existing care pathways. Programme budgeting provides a structured framework for data-driven budget decisions, resource investment, and optimisation of outcomes.

Without adopting this disciplined approach, the NHS risks ongoing inefficient spending that no additional funding can resolve.

Conclusion

The combination of PBMA and population healthcare provides a robust framework for systematically reviewing funding priorities to optimise patient and population benefits, easing pressure on the NHS workforce. Shifting from historical allocation trends to value-based healthcare can enhance outcomes significantly.

Both PBMA and population healthcare were core NHS practices that contributed to its standing as one of the best healthcare systems globally. Reviving and protecting these methodologies from current or future NHS reorganisations is crucial.

Recognising the ongoing interest and challenges, the Healthcare Financial Management Association plans to hold a roundtable discussion in the coming months to advance dialogue and implementation of programme budgeting.

Correspondences should be addressed to HFMA president lee.outhwaite@nhs.net

All authors contributed equally.