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

The longest year

As this edition of Following the Money arrives in your inbox, we will be just hours away from the release of NHS Improvement’s final performance report for 2015-16, revealing the official verdict on just how bad the provider sector deficit was last year.

For those of you who can’t wait that long, my colleague Lawrence Dunhill yesterday published HSJ’s unofficial verdict, and the magic number is… £2.7bn.

To arrive at that figure, HSJ harvested unaudited outturn figures from the March 2016 finance reports of nearly every NHS provider in England (212 to be exact). For the small minority (27) that had not yet reported full year figures, we used the latest available forecast, which in most cases was based on February 2016 numbers.

So unless something miraculously profitable happened in those 27 trusts in the month of March, we know that today’s NHS Improvement report is going to be bad.

Well, we already knew it was going to be bad. But a deficit in the order of £2.7bn would be worse than bad (you can pick your adjective, but the Health Foundation went for “cataclysmic”) for a number of reasons.

The first is that it is uncomfortably far north of the target deficit of £1.8bn, the magic number that was reportedly the maximum that could be covered off by underspending elsewhere to ensure the Department of Health did not blow its budget.

However, NHS Improvement indicated as far back as February that this target was likely to be missed, forecasting a full year deficit of £2.37bn in its month nine report. So if the target was going to be missed anyway, what does it matter if it’s missed by £600m or £900m?

The answer is that the real target might not have been £1.8bn. Some well-informed sources argue that the actual number the DH thought it could cover off was somewhat higher than the official target given to the provider sector. When you think about it, that would have been the prudent approach.

But the idea that it had a nearly £1bn margin of safety feels a little farfetched, so we’re back in the territory of serious concern that the department might blow its budget, eliciting all the negative repercussions for the health service that Following the Money has described previously.

The other reason it would be bad news is that it would mean the best efforts of trusts and NHSI – including the crackdown on agency rates – did not manage to stop the bleeding in the final months of 2015-16. The provider figures collected by HSJ show that financial performance continued to deteriorate between January and March, offsetting much of the benefit from hundreds of millions of pounds worth of capital-to-revenue transfers and other last minute financial manoeuvres that trusts performed at the urging of NHSI.

Those manoeuvres were one-offs, so providers have gone into 2016-17 in very much worse financial health than was planned for. Now, NHS England has already admitted that the underlying provider deficit for 2015-16 was “closer to” £2.8bn than £1.8bn, but on the strength of HSJ’s research even that grim picture looks significantly rose-tinted.

All this might go some way towards explaining why the King’s Fund’s latest survey of finance directors indicates the provider sector is anticipating a deficit north of £1bn – despite benefiting this year from a £1.8bn fund to eliminate provider side deficits.

The implications of the health service missing by that order of magnitude its target of getting the provider sector back in the black are hard to quantify – but they, too, would be very bad. And all this probably goes some way towards explaining the tough talk from Simon Stevens this week about trusts’ financial plans, and from Jim Mackey about agency spending.

And to think, 2016-17 was supposed to be the good year.