Spending on healthcare is set to soar over the next 50 years despite NHS efficiency measures, a new report predicts.

The Office of Budget Responsibility’s Fiscal Sustainability Report forecasts increased costs will result in a 5.2% rise in public spending on healthcare – the equivalent of £80bn in today’s terms.

A hike in the proportion of the population aged 65 and over is highlighted in the report, as are additional costs required to cover social care and pensions.

Report authors say the findings should not result in “a bigger tightening” of NHS purse strings but ministers should “think carefully” about long-term consequences resulting from short-term policies.

Health spending will rise from 17% today to 26% in 2061, the report found. As a consequence, the government will need to increase tax rates to generate £17bn in funds or make major spending cuts to reverse levels of debt, the report said.

The report also forecast an improvement in the efficiency of the NHS. Spending will rise from 6.8% of gross domestic product (GDP) in 2016-17 to 9.1% over the next half century. The report bases this on NHS productivity increasing by 2.2% annually. However, if healthcare productivity grows less quickly at 0.8%, as certain experts predict, spending levels may increase to around 16.5% and see a steep rise in public sector debt.

Spending plans for the NHS between 2011 and 2015 will be the tightest four-year period in the last half a century, financial experts warn.

Researchers from the Institute for Fiscal Studies warn that only a long-term fix in public service budgets or large tax increases will enable a return to the 4% average annual growth the NHS budget had become accustomed to.

The NHS, the report says, should now consider what services remain freely available as it tackles a decade of austerity and unprecedented savings targets.

The report, funded by the Nuffield Trust, found that NHS spending in the UK reached £137.4bn in 2010/11, with this cost in England accounting for a quarter of all public spending.

Authors said that continuing the freeze in NHS spending in England between 2015 and 2017 would mean reducing spending in other areas of public services by an average of 2.3% annually.

The Government increased spending on the NHS in its 2010 Spending Review by 0.1% each year in real terms. But the report found that increasing levels of money spent on healthcare in line with national income between 2015 and 2022 would still leave the NHS budget growing slower than demand for care in an ageing population.

Anita Charlesworth, Chief Economist, Nuffield Trust, said the NHS needs to plan a “medium-term future based on belt-tightening” and be prepared for future years of hardship.

Mike Farrar, NHS Confederation Chief Executive, said the NHS needs to be honest about the necessary action needed to deal with future challenges. “We need to forensically examine what services and treatments provide the best outcomes for patients and local communities, and what the NHS can and cannot afford to provide in the future,” he said.

“This will be far from pain-free, but decisive action is necessary if we are to maintain high-quality services and stay in the black. If the NHS does not change, it will not be fit for the future. We need swift action before the financial pressures overcome us.”

A spokesman for the Department of Health said it was well aware of the challenges facing the NHS. “Where the NHS can do things better and save money to reinvest in high-quality patient care, it must do so,” he said.

The ABPI has questioned the amount of money the NHS spends on new and innovative medicines.

A new forecast from the Office of Health Economics shows spending on innovative branded medicines is set to shrink over the next three years.

Stephen Whitehead, Chief Executive of the ABPI, said the decline is “bad news” for the discovery of future life saving drugs and “ultimately the health and wellbeing of UK patients.”

Research found that the total amount spent on the NHS is actually set to rise by 2.5% annually until 2015. However, expenditure during that time on new branded medicines will rise by just 1.3%.

There will be a very slight increase in the growth of the total amount spent on medicines each year by the NHS from 3.5% to 3.7% per year until 2015 – driven mainly by an increase in the amount of generics purchased.

But, research found, spending on medication launched between 2012 and 2015 will account for less than 2% of overall spending on medicines.

“This report spells out the very good value for money that the NHS derives from our medicines and shows the system is achieving huge savings from medicines coming off patent,” said Stephen Whitehead.

“But I am deeply concerned that these savings are not being reinvested back into the system because these figures show our spending on the newest and most advanced medicines is declining in real terms.”

The ABPI CEO also called for a change in thinking by the NHS around medication where drugs are seen as an investment and not expenditure.

“Looking ahead, as we start to prepare for negotiations with Government on the next medicines pricing scheme, we need to see our medicines rewarded for the high risk and cost of research and development,” he said. “And once medicines are ready for use by patients, we want them available on the NHS as quickly as possible so as many patients as possible can reap the health benefits.”

Spending on medicines in the US increased by 3.7% to $320 billion last year after a raft of new drugs entered the lucrative market, a new report has found.

The report, The Use of Medicines in the United States: Review of 2011, showed that spending on branded medicines increased by 2.2% to $14.9bn and on generics to reach $5.6bn.

Michael Kleinrock, Director, Research Development, IMS Institute for Healthcare Informatics, said that “2011 was a remarkable year” for the number of drugs which entered the market.

Research found there were 34 New Molecular Entities launched in the US last year – the most in a decade. Orphan drugs also saw more launches in 2011 than in the last ten years.

They were joined by several new types of therapies to treat cancer, multiple sclerosis, hepatitis C and cardiovascular conditions.

Nearly a third of total healthcare spending was spent on medicines treating cancer, asthma and COPD, dyslipidaemia and diabetes, and mental health medication for psychoses and bipolar disorders.

Each of these therapy areas increased faster than the overall market, and showed a range of dynamics related to new treatment options and growing diagnosis of related diseases.

The increase in drug spending in the US is in contrast to that of NHS, where spending dropped to £8.81 billion in 2011 from £8.83 billion in 2010.

The Government’s claim that cuts in NHS spending are necessary to stop UK healthcare becoming “unaffordable” has been questioned by healthcare think tank the King’s Fund.

A statement by Health Secretary Andrew Lansley that current levels of NHS spending would make the NHS impossible to fund in 20 years’ time has been challenged by John Appleby, Chief Economist at the King's Fund.

Appleby argues that 7 of the 15 EU countries already spend a higher proportion of their GDP on healthcare than England, and that policy should focus not on cutting budgets but on comparing priorities.

Writing in the Daily Telegraph, Lansley said that current levels of NHS spending in England would mean the budget increasing to £230 billion, which “we simply cannot afford.”

“It is equivalent to average real increases in spending of just over 4% a year – a bit more than the long run average for the NHS since 1948,” Appleby commented. Given current long-range forecasts for the economy, this is likely to be approximately 10.9% of GDP in 2030.

Including private healthcare, the total health spend would be around 12.4% of GDP (compared to 10% now). But as Appleby noted, in 2009 seven of the 15 EU countries spent over 10% of their GDP on healthcare, while the Netherlands spent 12%.

Appleby concluded that the level of NHS spending is “a matter of choice, not affordability,” and that policy-makers need to assess competing priorities instead of asserting that only one policy is possible.

 
John Appleby