HSJ’s expert briefing on NHS finances, savings and efforts to get the health service back in the black

Political demands

It is two years since the parlous state of hospital finances started grabbing mainstream media headlines in a way that demanded a clear reaction from the government.

The Treasury led response, articulated in last summer’s “reset”, marked a sudden return to central command and control of NHS budgeting, and brought an end to many of the financial freedoms that trusts had enjoyed over the previous decade.

As with any big government intervention, politics demands that it must make a difference. Which is why the Department of Health, NHS England and NHS Improvement have repeatedly argued that the finances are improving.

But analysis by HSJ and the Nuffield Trust suggests – when judged in the round and on an underlying basis – there has been little to no improvement to the underlying financial situation.

The acute sector is falling into a financial hole roughly the same size as last year, with notable improvements at some trusts being offset by large blow ups at others.

Despite regulators claiming a “very strong start” to 2017-18, there appears to be even more risk in the plans than there was in 2016-17.

The best NHS Improvement can probably hope for is a deficit in the region of £700m-£800m, which would not compare very favourably to last year’s £791m deficit.

The income problem

However, it’s important to distinguish between the stubbornly bad financial situation and the financial performance being delivered by trusts.

It’s undeniable that trusts continue to perform strongly in terms of delivering cost savings. Recurrent savings of 2.7 per cent were made last year, which was higher than the 2 per cent referred to by Lord Carter as a realistic ambition (and was also the figure baked into the tariff).

With non-current savings lumped in, trusts delivered a massive 3.7 per cent cost improvement programme last year. This was after several years of delivering similar percentages, when any low hanging fruit would have been picked off.

This doesn’t mean there aren’t more savings to go at. The pathology networks announced this week represent some potentially big ticket items still on the chopping board.

But even if trusts continue to deliver CIP percentages of more than 3 per cent, they will only be treading water, rather than making inroads into the deficit.

Because the financial trouble lies largely on the income side of the equation, which the NHS can do little about.

Since 2010, the service has been subject to the most sustained funding squeeze in its history, as cost and demand pressures have risen interminably. The pressures could even get worse if inflation continues to bite as hard as it appears to be doing now.

On the current trajectory and funding envelope, the NHS does not stand a chance of delivering financial sustainability within the Five Year Forward View period, and the situation needs a pretty urgent reassessment if many of its ambitions are to be fulfilled.

Perhaps the Treasury is fully aware of and sympathetic to this, but wants to see the NHS dripping in sweat before topping up its income to the reasonable level.

This would be a dangerous game to play – because every hospital or staff member will have a breaking point. Some have already reached it, and others will be close.

Refusing winter cash

The division between NHSI and NHS England looks as wide as ever, with the latest rift emerging over winter funding for providers.

Jim Mackey says “urgent action” – ie more money – is needed to ensure hospitals are ready for the cold weather but NHS England (in the absence of any likely help from the Treasury) is unwilling to oblige.

Paying for extra hospital capacity now would help hospitals maintain their planned levels of elective activity and therefore help them meet their financial targets.

But there isn’t much in this for commissioners, who may be attracted by short term savings resulting from lower levels of elective activity, and would risk missing their own financial target by stumping up any additional cash.

This illustrates just how much the system is crying out for shared financial plans between commissioners and providers, and between NHSI and NHS England.

Questions for auditors

The pressure on NHS finance directors to report positive numbers has been well documented by Following the Money, and we are already starting to see which trusts have set wholly unrealistic plans for 2017-18. Step forward Lewisham and Greenwich.

One of last year’s early blow ups was Gloucestershire Hospitals FT, which has refused to publish the full investigation report into the failings.

The chair, chief executive and finance director all left the trust after the real deficit emerged, but it surely also raises difficult questions for Gloucestershire’s external auditor, Grant Thornton.

The firm said of the 2015-16 accounts: “Whilst the trust does have significant challenges ahead, we concluded that the trust has proper arrangements in place to support the sustainable delivery of strategic priorities and maintain statutory functions.”

The trust then went into 2016-17 planning to deliver a £5m surplus, but just a few months later was admitting there would be a deficit of around £20m.

Asked whether its audit did not identify this gaping hole, Grant Thornton said the findings included a “number of issues and risk areas raised with the trust” and its audit was “rigorous”. There was no response to a question about whether the firm had undertaken any work to understand the audit’s findings in light of the subsequent deficit that was revealed.