Hospital trusts are disproportionately targeting non-pay costs and seeking extra income as they embark on a £2.4bn savings drive in 2013-14, an exclusive HSJ analysis reveals.

Data collected from 82 hospital trusts shows less than half of their total planned savings for this year is due to come from pay bills. That is despite pay on average comprising around 70 per cent of acute providers’ costs.

Just half of the trusts are planning to make the majority of their savings from pay bills. In 2012-13 efficiency plans, pay constituted the majority of savings for nearly two-thirds of trusts.

Nationally, the proportion of savings classified as pay schemes accounts for 47 per cent of the total savings planned for this year, down from 53 per cent in 2012-13.

The national proportion classified as “non-pay” savings remains the same as in 2012-13, at 36 per cent. Income generation schemes represent 17 per cent of the total this year, an increase from 11 per cent in 2012-13.

The pattern suggests a growing number of trusts are reducing their reliance on workforce to cut costs, although others are still relying on making savings from pay.

Trusts planning the largest savings

TrustLargest savings targets as a percentage of total income, 2013-14
University Hospitals of Morecambe Bay8%
Bedford Hospital8%
Milton Keynes Hospital7.5%
North Cumbria University Hospitals7.5%
Burton Hospitals7%
Buckinghamshire Healthcare7%
Heatherwood and Wexham Park Hospitals7%

Trusts planning largest non-pay savings

TrustLargest percentage of savings from non-pay initiatives and income, 2013-14
Central Manchester University Hospitals93%
University Hospital Birmingham85%
Royal Free Hampstead82%
Doncaster and Bassetlaw Hospitals81%
King’s College Hospital79%

Source: Based on provisional information given to HSJ by trusts

The shift in focus from pay follows the report of the Francis inquiry into care failures at Mid Staffordshire Foundation Trust. HSJ was told the report − and associated scrutiny of care quality and staffing − had made it difficult to target pay costs.

Trusts are required to have all efficiency plans approved by their nursing and medical directors as clinically safe, before they are implemented.

One medical director told HSJ the Francis inquiry had “reduced appetite for major staffing cuts”. The source said the high pressure on emergency departments in recent months had also made it more difficult to propose reductions.

James Wilson, managing director at healthcare finance consultancy Assista, which works with hospitals on efficiency programmes, said: “The pay element that could be taken out easily has been, and there is evidence of nursing directors and medical directors not signing off on pay savings.”

He said he expected land sales, procurement and sharing of services such as finance and human resources across trusts to be major contributors to non-pay schemes.

“The evidence points to this year being the big one for land sell-off,” he added.

Mr Wilson, commenting on the growing reliance on income generation, said there was an increased interest from trusts in starting private patient units, especially in areas with affluent, elderly populations.

Some observers questioned whether the savings plans were realistic.

One hospital trust deputy chief executive told HSJ that, although the proportion of pay in the savings plans had reduced year on year, the £669m total across 82 trusts was still “a big ask” with a potentially “huge impact on services”.

Bill Boa, an interim finance director who was worked across a number of NHS finance roles in recent years including district general hospitals and large teaching institutions, told HSJ: “I was surprised to see how many of the plans were based on income and non-recurrent funding. It is highly risky in the current environment to underpin savings with an assumption of additional income and non-recurrent savings which are not sustainable.”

Ernst and Young partner and acute sector efficiency specialist Joe Stringer said some of the plans appeared unachievable.

“What we’re seeing is some trusts being reluctant to report the known reality on the ground,” he said.

“Traditional non-pay and income opportunities are rapidly drying up [which will leave] workforce reduction as the only short-term alternative.”

He added: “It is unfortunate that as we near the election, more fundamental changes through reconfiguration and organisational change will become even less palatable, even though these are the more sustainable solutions.”

HSJ asked for savings plans from all 141 English non-specialist hospital trusts and received headline information from 111. Eighty trusts also provided provisional breakdowns of plans.

Across all 111, the total planned saving was £2.4bn, or 5.1 per cent of combined income. Last year the total cost saving was 5.3 per cent.

Related files/tables

Trusts ease pay savings in Francis aftermath, analysis shows