HSJ’s weekly email briefing on NHS finances, savings and efforts to get the health service back in the black
There was some apparent good news about NHS provider finances last week, with regulators declaring a “strong start” had been made in the first three months of the year.
And taking the numbers at initial face value – as was encouraged by NHS Improvement by the release of a supplementary paper and press release a day before the full report – this looked a fair assessment.
But considering the way the system is now geared towards meeting plans early in the year, and after a closer look at the detail (once it arrived, the day after), there was precious little encouragement to take.
Discounting the “sustainability and transformation fund”, which complicates the data, the provider sector reported a deficit of £911m in Q1, which was £5m better than planned and compares to £930m at the same point last year.
But as several health policy experts and trust sources have previously warned, the STF means providers have an incentive to dress the early quarters of 2016-17 in some flattering jeans, before the buttons pop off to reveal a whopping great beer gut at the end of year.
So although things look to be on track, there are some pretty convincing reasons why things are unlikely to stay that way.
Crucially, the more detailed report said providers under-delivered on their efficiency plans, with recurrent savings of just 1.9 per cent against the planned 2.5 per cent. A large over-delivery of non-recurrent efficiencies has lessened the negative impact.
Although the profile of cost improvement plans will vary throughout the year, Q1 delivery looks a long way short of the 4 per cent savings that the Nuffield Trust says are necessary to meet the financial “control totals” across the year.
The 4 per cent figure is based on Nuffield’s estimate of last year’s underlying provider deficit being around £3.7bn, whereas its not clear what NHSI’s starting point was.
Given all the clever accounting and capital-to-revenue transfers that went on in 2015-16, I’d say the Nuffield Trust was pretty close to the mark, and this is likely to become apparent later in the year.
In simple terms, to restore long term financial health the provider sector needs to deliver recurrent savings of well over 2 per cent, and in Q1 it failed to do so.
Perhaps at this point we should remember that 2 per cent is widely deemed a realistic ongoing target for the sector, as outlined in Lord Carter’s report on NHS productivity, and by former Monitor chief executive David Bennett.
What about the £250m deficit target?
Meanwhile, although the headline numbers say the sector is on plan, NHS Improvement’s commentary suggests that trusts are forecasting a year-end deficit of £644m, against the planned £580m (once the entire STF is applied).
NHSI do not describe this as a forecast, instead saying that “further action” will be taken to avoid this.
Interestingly, there is no mention anywhere of the aim (stated in the “reset” documents) to reduce the deficit even further to £250m. This target always felt a bit pie in the sky and I wonder if it provokes similar feelings at NHSI towards the Treasury/Department of Health, as local trusts feel towards NHSI about their control totals.
Don’t forget commissioners
We should also remember that changes to the national tariff have resulted in an unforgiving vice being applied to commissioning budgets.
There were signs of this strain in NHS England’s report for Q1, with a £57m overspend by CCGs compared to a small underspend at the same stage last year, and local leaders have warned it will get worse.
So although the additional government funding means 2016-17 is supposed to be a “firebreak” year, it could yet turn out to be the year that commissioners joined providers in the deep financial mess.