HSJ’s email briefing on NHS finances, savings and efforts to get the health service back in the black.
No more football
There was a noticeable change in tone in NHS Improvement’s latest finance report – with the regulator now accepting that providers will miss their £580m maximum deficit target in 2016-17.
The inevitable winter onslaught – which has pushed the year-end deficit forecast to £873m – meant there was no trumpeting press release, and no footballing metaphors from Jim Mackey.
There was also acknowledgement of the cost pressures to come, and an admission that many of the counterbalancing actions will be via technical accounting and non-recurrent measures.
It was a far more realistic assessment of the financial situation than we are used to seeing from national leaders.
The magic number
It was always obvious that NHS trusts would be unable to deliver a £250m deficit in 2016-17 (and a breakeven run rate heading into next year) – the target set by national leaders in last summer’s “reset” document.
NHS England and NHS Improvement stopped referring to this figure months ago, with the “maximum” £580m deficit becoming the new target.
This commitment was restated by NHS England on 9 February, which noted in its finance paper that its fellow arm’s length body was “committed to ensuring” the deficit does not breach this limit.
Less than a fortnight later and NHS Improvement was admitting the deficit would exceed £580m, after trusts reported a significant deterioration in the third quarter of 2016-17.
So the magic number is now £800m, which is the “risk reserve” that local commissioners have been forced to hold back in case of overspending by providers.
Although the official forecast is now a deficit of £873, it might just be possible to shrink this close to £800m.
This cannot be done through genuine efficiency savings – it’s too late for that. As was hinted at in NHSI’s report, it’ll be through one-off measures such as land sales, technical accounting measures and other “commercially sensitive initiatives”.
The required size of these one-offs will depend on the extent to which providers’ back-loaded savings plans deliver on their promises in the final three months. A deterioration around £200m (matching that in quarter three), would leave NHSI having to bridge a gap of around £300m to keep within the risk reserve.
Realistic efficiency plans
While performance against the nationally agreed plans looks grim, we should remember that providers were set an impossible task in 2016-17 of delivering efficiency savings of 4 per cent.
What the sector should really be judged on is whether the underlying deficit is being reduced and improving via genuine efficiencies.
In the nine months to December, trusts delivered recurrent savings worth 2.4 per cent of expenditure, which matches the performance over the same period in 2015-16.
We can knock about half a per cent of that figure in both years relating to income generating schemes, which means providers are more or less continuing to deliver the 2 per cent savings that Lord Carter said would be a realistic target.
However, the Treasury may not see it this way.
CCG position could have been worse
The significant deterioration in CCG finances during quarter three caused some surprise in the provider sector.
The emergency pressures in November and December led many trusts to cancel elective operations, which NHS Improvement said resulted in a £167m hit to revenue.
Although trusts missed out on big chunks of income, it was thought this would boost the CCG side, as they would still be holding the money.
So it sounds like the CCG position could have been even worse had providers’ elective activity gone to plan.