- Increasing warnings from auditors over “going concern” status of NHS trusts
- Letter seen by HSJ says government will continue to bail out trusts
- Policy experts call for clarity over long-term financial architecture
The government has intervened to reassure NHS trusts they will continue to be bailed out, following increasing concerns from auditors over their operational viability.
In a letter to trusts and auditors seen by HSJ, the Department of Health and Social Care said there was a “thematic issue” being expressed by auditors about the viability of heavily indebted providers.
Due to auditors’ concerns, a number of trusts have questioned whether it is appropriate to formally declare their organisation as a “going concern” in their annual accounts.
The going concern statement is a widely understood accounting statement, which declares that an entity can continue operating and meet its financial obligations.
The letter, sent by DHSC finance director Chris Young last week, said: “NHS England and Improvement have informed the department that a thematic issue being expressed by auditors, through the year end audit process, is the going concern basis of NHS providers facing significant repayment of loans through 2019-20.”
The letter pointed out that the DHSC has recently agreed extensions to loans due in 2018-19 to November 2019, and will “continue to take refinancing decisions on loans due in the coming year”.
It said the new five-year funding settlement for the NHS demonstrated the government’s commitment to continue to fund its core activities, and new financial rules will support trusts’ longer term recovery plans.
It added: “Such options, as well as the ongoing availability of interim support, are available to ensure that NHS providers remain operationally viable.”
It is understood that trusts questioning whether they should sign off their going concern statement could cause delays and risk inconsistencies when it comes to consolidating the NHS’ accounts.
‘Pointlessly shuffling back and forth’
In 2015, the government switched from bailouts that did not have to be repaid to granting loans, which it argued would encourage greater financial discipline among trusts. However, this is leaving many trusts, such as Medway Foundation Trust and North Cumbria University Hospitals Trust, heavily indebted.
Year-end accounts for 2017-18 showed trusts owed a combined £11bn to the department - more than total liabilities relating to the private finance initiative. Accounts for 2018-19 are expected to show another rise in these debts.
In 2017-18, 82 providers received audit reports containing paragraphs highlighting “material uncertainty” in relation to their going concern, or an “emphasis of matter relating to a demising organisation”, up from 70 the previous year.
Policy experts said clarity about future NHS financial rules was urgently needed, so trusts could make longer term plans on investment and recruitment.
Sally Gainsbury, senior policy analyst at the Nuffield Trust, said: “Auditors are raising significant concerns and the DHSC is essentially telling trusts not to take those too seriously because they’re going to be sorting the situation out. But what’s not clear is how they’re going to do that.
“How are organisations supposed to have realistic recovery plans when they don’t know where the cash flow is coming from beyond November?”
Siva Anandaciva, chief analyst at The King’s Fund, said: “It may be that the department bites the bullet and writes off the loans and/or restructures the balance sheets of the most challenged providers.
“Otherwise it will have to reconcile itself to having these NHS organisations substantially dependent on its loan book for the foreseeable future, with public funding pointlessly shuffling back and forth.”
Saffron Cordery, deputy chief executive at NHS Providers, which represents trusts, said: “NHS prices have failed, over the last five years, to keep pace with the costs of providing care. It’s therefore not surprising that external auditors are asking questions about whether some trusts are going concerns…
“We need an NHS financial architecture that enables all well-led trusts to run high-quality services while remaining financially sustainable. The 2019-20 changes to NHS finances are a good step in the right direction but there’s a lot more still to be done”.
A DHSC spokesman said: “We are currently reviewing the financing framework for providers and will consider options to support sustainable long term financial recovery as part of the delivery of the NHS long term plan.”
Story updated to include DHSC comment.