NHS hospitals will run up deficits of around £7.5bn a year by 2015 under a “best case” scenario, management consultants have warned.
A report published today by consultancy firm Tribal says the tariff arrangements for 2010-11 and beyond will trap hospitals in an “uncomfortable pincer movement” where they will have to drive down costs while their activity levels also fall.
For a significant number of hospital providers this squeeze will threaten their continuing viability
Tribal director of health and report author Kingsley Manning said the cap on emergency admissions that will be paid for at full price, combined with the cash freeze in tariff prices and the likely move to price competition, means the “best case” for NHS hospital providers is for them to try to offset the fall in prices with an increase in activity volumes.
But he estimates that will mean hospitals having to deliver around 15 per cent more activity by 2015, with no increase in the cash value of their income. Assuming pay rises by a maximum of 1 per cent a year and other costs by 3-4 per cent, Mr Manning estimates the present £1.5bn annual surplus for the hospital sector will turn into a £7.5bn annual deficit by 2015.
He said: “Even under this relatively favourable scenario of cash revenues being maintained, the sector would have to deliver a 15-20 per cent improvement in productivity by 2015 to break even. For a significant number of hospital providers this squeeze will threaten their continuing viability, at least as independent institutions.”
He said hospitals should look to moving out of buildings they are not using productively and all hospitals should now be calculating their return for expenditure on fixed costs. But he said he was pessimistic about income hospitals could make from selling surplus assets, as they may not find buyers.
However, not being able to sell a property was “no excuse to keep it open” and the main savings were to be made from being able to stop paying their running costs, such as staff, maintenance and fuel.
He said he was also pessimistic about the savings or extra income hospitals could gain through vertically integrating with local community services.
“The reason fully integrated trusts were taken apart some years ago was because people who are good at running acute hospital based services aren’t necessarily good at running community services,” he said.
Community based services “have different information flows and different business cases,” he added.