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

A fanciful prospect

Deficit stricken NHS trusts received cash bailouts worth almost £2bn last year, most of which will have to be repaid to the Department of Health.

That’s the theory, at least.

It comes after a change in policy from the DH, which instead of handing out free cash has moved to a loan system designed to incentivise sustainable planning.

But repayment (with interest) looks a fanciful prospect for many trusts. Around 50 organisations relied on support funding worth at least 5 per cent of their annual turnover in 2015-16, which would require a challenging repayment profile even in good times.

And we are not in good times. These organisations are still racking up huge annual deficits, which will need to be supported by further loans.

Prolonging the recovery

The rationale behind the policy change makes sense for trusts at the margin, where there is a real prospect that they can turn the tide and start to repay. And it’s probably true that some organisations stopped trying as hard as they might, knowing that the DH would never let them run out of cash.

But for those in deeper trouble, it seems to make far less sense. Far from thinking about repayment over the next three to five years, these organisations can focus only on safely reducing their annual deficit, and therefore reducing their reliance on further loans.

The loan system and interest rates will prolong their recovery, and risks creating an apparently never-ending and insurmountable problem. Recruitment and retention of staff could suffer even more than they already do, creating a vicious cycle and fatally undermine efforts to return to financial balance.

STPs and STF

It’s also not clear how the loans will be treated in the regional “sustainability and transformation plans”. Have the STPs factored them into their “funding gap” analysis? Do they expect to pay them back?

I’d be interested to hear from anyone who knows the approach their STP is taking on this.

The introduction of the “sustainability and transformation fund”, totalling £1.8bn, was supposed to wipe out the overall provider deficit this year, and drastically reduce number of trusts needing bailout money.

It will obviously have an impact, but significant amounts of loan funding will still be required to cover a deficit which looks likely to range between £500m and £1.5bn (even after accounting for the full STF)

Wye Valley Trust, for example, will need around £30m from the DH this year in order to pay its staff and creditors.

Over the summer, the trust has reported severe cash flow issues, to the extent that a number of suppliers have either stopped dealing with them or threatened to do so.

Concrete to mud

In May, NHS England offered up a breakdown of where it expects to find £22bn of efficiency savings by 2021 – as per the Five Year Forward View.

There wasn’t a great amount of detail in there to start with, but one of the more concrete measures appeared to be a £170m cut to community pharmacy budgets.

But this now appears to have hit the buffers, with the DH halting the move in favour of further discussions with the sector.

Back in March, the Public Accounts Committee said there was “not yet a convincing plan” to deliver the £22bn target. Six months later – another 10th of the way into the forward view – that conclusion still holds.

Admin error

The Public Accounts Committee has been chomping at the bit to give officials a grilling over the DH accounts for 2015-16.

Its members did a pretty good job of making the money men squirm over the £417m “admin error” that saved the department from begging parliament for more money.

Permanent secretary Chris Wormald, along with finance chiefs David Williams and Andrew Baigent, each insisted it was a genuine mistake, rather than a sneaky ploy to (sort of) balance the books.

Whether we believe them or not, it goes without saying this trio will be desperate to avoid similar scrutiny from the committee next year, which means genuine savings will be needed.