While the NHS will get much of the money from the new Health & Social Care Levy in the next three years, yesterday’s Health Service Journal (HSJ) reported that senior NHS management expect it to be unable to deliver many of the goals in 2019’s Long Term Plan.

A fundamental problem for the NHS is the persistent shortage of clinical staff, whether that be consultants, nurses, GPs or allied health professionals. HSJ reports that plans to recruit overseas nurses have been dented by Covid, but, even if 50,000 more nurses are delivered – as promised at the last election – the NHS will still have a major shortfall in clinical staff.

Staff shortages affect not only the NHS’s ability to deliver the extra activity needed to shorten waiting lists, but also the cost of this activity. The NHS – as a near monopsony employer for many clinicians – has some pretty powerful tools to keep a lid on staff remuneration, but with persistent staff shortages new routes to higher pay are likely to keep opening up.

Routes to additional income for NHS clinicians

A sense of where cost pressures and risks might emerge in the next couple of years (assuming no movement on NHS pay or the pensions tax (as highlighted by Andy Cowper) can be gained from looking at the opportunities open to NHS clinicians to increase their earnings.

Most of these opportunities involve taking on extra work outside permanent NHS employment, and it is this additional work – rather than the activity carried out by clinicians in their core working hours – that may be critical to delivering the extra capacity needed to shorten NHS waiting lists.

Agency and bank shifts

In the past, the main way for most clinicians to earn extra income, at a higher rate of pay than in their permanent role, was to work extra shifts via an NHS staffing agency. These agencies play an important role in helping NHS trusts manage their highly variable staffing needs by supplying staff to NHS trusts to fill vacant shifts.

Agency price caps, introduced in 2016, now ensure that the amount an NHS Trust pays for an agency shift is roughly equivalent, in most cases, to what a clinician would earn for the same shift in permanent employment. Clinicians can still earn extra money by working agency shifts, and NHS staffing agencies still help NHS trusts manage temporary workforce needs, but the opportunity to earn extra income at a higher rate is no longer there for most agency shifts.

Limiting agency pay has probably encouraged clinicians to consider other opportunities where pay is less regulated and better reflects clinician scarcity (even if few may have thought about it in quite these terms).

In-house staff banks operated by NHS trusts may be the most immediate alternative available to clinicians. Interestingly, when the agency price cap was introduced, there was no equivalent measure put in place for bank shifts. Historically, rates for bank shifts were less than for agency shifts, which was one of several reasons why a significant number of clinicians used to prefer agency to bank work, but it is not clear that this is still the case.

Private hospitals

Private hospital work may also be an option for consultants who are in the right location with the right specialisation. This can involve treating: (i) private patients at private hospitals (including private patient units at NHS hospitals); or (ii) NHS patients at private hospitals. Consultants’ employment contracts often facilitate this additional work. The amount of extra money that can be earned from private hospital work will vary, but treating private patients is likely to be better remunerated than treating NHS patients at private hospitals. This is because the NHS tariff, which is the amount the NHS pays private hospitals for treating NHS patients, constrains the money available to remunerate consultants.

With long NHS waiting lists, demand for private treatment is fast increasing, particularly for self-pay patients, and private hospitals will want to attract more consultants to service this growth. In some ways, (and ignoring distributional issues) the migration of patients from the NHS to private healthcare might alleviate some of the pressure on the NHS if consultants are working more hours, because of the higher pay available for private patient work, and this increases capacity across the entire health system. However, the effect will be limited if consultants are simply substituting private patient shifts for NHS shifts, and capacity remains the same across the system.

Asset-light clinical services suppliers

Another option for clinicians may be to work for one of the asset-light businesses that sell clinical services to NHS trusts without needing their own hospital. These businesses may use the facilities of an NHS trust (e.g. elective care insourcing), offer a community-based or other out-of-hospital service, or provide a digital/remote service that is only one component of the hospital care pathway (e.g. teleradiology).

These services largely fall outside existing mechanisms for regulating prices (i.e. the NHS tariff or the agency price cap). This provides an opportunity for higher prices, and therefore, higher clinician pay.

Elective insourcing and teleradiology are ‘increasingly popular’ according to NHS Shared Business Services. The price of these services are constrained by NHS framework contracts, such as those put in place by NHS Shared Business Services, but are likely to better reflect underlying supply and demand conditions.

Recent growth in these services may have been boosted by the agency pay cap, but their operating model also brings operational benefits. Insourcers operate NHS Trust theatres and facilities at times when they are not used by NHS Trusts, which increases patient throughput. Teleradiology services can offer faster turnaround times for medical image reporting.

One variation on the elective care insourcing model is for consultants at an NHS Trust to establish their own business (or ‘chambers’), and then collectively sell their services back to their own or other NHS trusts. This model has struggled to overcome tax, regulatory and conflict of interest concerns in the past, but the incentive for consultants to work out how to fix these issues has increased as other routes to higher pay have been restricted.

Grade inflation at NHS hospitals

Finally, while centrally-struck pay deals mean that NHS trusts can’t compete with each other on headline rates of pay, they can indirectly compete for staff by offering better terms and conditions. This competition is good for patients, staff and the NHS when it incentivises better working conditions that improve staff retention (and reduce costs by reducing staff turnover). But, on the downside, there can be situations when NHS trusts that are desperate to fill vacancies recruit clinicians to more senior (and higher paid) positions than their experience or responsibilities suggest is warranted. This form of grade inflation increases costs without the productivity payoff that comes from a better working environment.

Accepting the inevitable and managing the risks

A significant chunk of the Health & Social Care Levy is intended to fund extra NHS activity that will reduce waiting lists. It seems unrealistic to expect that this will not involve paying NHS staff at higher rates for extra work. If it doesn’t, clinicians are unlikely to offer up anywhere near enough of their time to treat patients in sufficient numbers to reduce waiting lists.

NHS Trusts, under pressure to deliver results, are likely to find that clinician availability is best in those channels where they earn the most money. As a result, all else being equal, we might expect:

  • asset-light, clinical service providers to grow their activity faster than NHS activity in private hospitals;
  • an increase in the cost of bank shifts relative to agency shifts, but with some of this divergence softened by greater use of the ‘break glass’ provisions which allow higher pay for agency shifts; and
  • more creative use of HR processes by at least some under pressure NHS trusts to attract and retain staff through grading them into higher paid positions.

If this is correct, then there are some risks that probably need to be addressed. New providers with asset-light models need to have robust clinical governance and appropriate CQC oversight. Clinician ‘chambers’ can have highly problematic conflicts of interest when they can influence activity levels at their employing trust and their own chambers. In-house staff banks, which – unlike NHS staffing agencies – face no competitive constraints, could escalate rates of pay beyond reasonable levels. Competition between NHS trusts for staff needs to be channelled into improved working conditions and not grade inflation.

High rates of pay for more work from NHS staff are probably inevitable, and activity will flow to the channels where remuneration is highest. While higher rates of pay will eat into how much extra activity the Government gets for its additional funding, it is probably better to deal with the potential risks now than sit back and then complain about unforeseen consequences and poor value for money later on.