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

Measuring the deficit

We are approaching the end of a critical year for the NHS, after which national leaders will need to demonstrate they have at least started to regain control of the finances.

Most of the evidence will need to be provided by NHS trusts, which were given very public targets at the start of the year.

The first challenge for NHS Improvement, the recovery coordinator, will be persuading the Treasury that the publicly stated targets were unrealistic and unachievable.

The argument could go like this: the £1.8bn of sustainability and transformation funding intended to bring the provider sector into financial balance in 2016-17 was based on the assumption of a £1.8bn sector deficit in 2015-16.

But the sector actually ended 2015-16 with a £2.5bn deficit, with the underlying position thought to be even worse, at £3.7bn.

This effectively left a gap of around £2bn that would be impossible to bridge.

So instead of being judged against the £250m deficit “stretch target”, the £580m official control total, or the real £800m control total, the sector should be judged on whether the position is actually improving, after several years in which the deficit spiralled ever deeper.

Despite missing the headline targets, NHSI will have a reasonably strong case to make, as shown by the graphs below.

The first graph shows a dramatic improvement in 2016-17 (based on the official outturn forecast), which is largely due to the £1.8bn of sustainability funding. Can’t see it? Click here

Graph 1

Graph 1

Deficit with STF

The improvement is even more pronounced if we consider the underlying position (although the underlying figure given for 2016-17 is uncertain; the figure in the graph is simply a projection of the run rates in the first nine months of the year).

But it’s debatable whether STF should be considered recurrent funding, as it’s only been confirmed for three years.

The second graph shows the position without the benefit of STF, enabling a better comparison with previous years.

The green line shows the underlying position and again, significant improvement since 2015-16. But the red line, showing the actual reported position, shows further deterioration since last year. Can’t see it? Click here.

Capture2

Capture2

NHSI will have to persuade the Treasury not to look at the red line, and would be right to argue that would be unfair.

There are all sorts of other variables, of course, such as the more generous tariff payments, which make the size of the deficit a tricky measure of trust performance.

As discussed in previous briefings, a better measure is probably the 2 per cent of recurrent efficiency savings that trusts are achieving, which matches last year’s number and the target that Lord Carter and former Monitor chief David Bennett said was achievable.

Yes, there is still too much duplication and waste right across the provider sector, but trusts should be given several years to gradually reach financial balance, rather than being expected to wipe out the deficit in 12 months.

The forecasting camps

When it comes to financial forecasting in 2016-17, finance directors at NHS trusts and CCGs reporting a deterioration have undoubtedly come under increased scrutiny and pressure.

There seems to be a split among the FDs I’ve talked to, between those who believe this pressure has gone too far and leads to misreporting, and a second camp who feel it’s justified in a year of challenge and recovery.

There have been numerous examples of financial plans falling over, which was always going to be a likely outcome of the incentives created by the STF (with trusts receiving shares of their allocation for staying “on plan” in the first half of the year).

Analysis of quarter three finances showed 40 NHS trusts now set to miss their financial targets have already received almost £200m from the fund, which was intended to reward good performance.

This hardly seems fair on those trusts that have deteriorated to a lesser degree and received nothing, but can you blame the more wily trusts for doing everything they can to maximise income?

I asked NHS Improvement whether it would prefer trusts to agree very stretching control totals, while knowing there’s a strong likelihood of missing them, as opposed to setting a realistic but less ambitious plan.

There was no reply from the regulator, but I think the answer is probably the former – and it’s easy to see the logic behind that.

If trusts keep trying to hit unrealistic control totals for more of the year, then they are more likely to end up with a smaller deficit, even if it does fall well short of the plan/forecast.

The regulator is also keen to get as much STF paid out to the sector as possible, as there could be some uncertainty about the unearned payments and how the Treasury will allow them to be used.

FD departure

What to make of Margaret Pratt’s resignation as interim chief finance officer at St George’s University Hospital Foundation Trust, just four months after being appointed?

She declined to talk to HSJ about her departure, but it can’t have been an easy stint at one of the most troubled NHS organisations in the country.

The trust will fall around £35m short of its control total this year.

Interestingly, the trust had initially signalled an £81m deficit forecast to NHS Improvement at quarter three (a £45m shortfall against the control total), but this was subsequently revised down to £71m.

The budget

The budget provided more than people expected for the NHS, while also delivering the anticipated increase in funding for social care.

As noted by HSJ’s editor, there could now be a “fierce struggle” between the NHS and local authorities over how the extra £1bn for social care will be spent in 2017-18.

The additional £325m of capital funding is modest, especially when you remember that the capital budget is due to be raided yet again next year to prop up revenue budgets. But the chancellor did promise more funding in the autumn, when there will be a major PR opportunity to give the NHS a 70th birthday present for 2018-19.

Banking on savings

One of the most common money saving strategies in the sustainability and transformation plans is to reduce expensive hospital activity and move care into the community.

But will this actually save money? A new report from the Nuffield Trust suggests health leaders shouldn’t bank on it.