The new financial year demonstrates just how tough things are going to get

As the end of the financial year approaches, it is perhaps predictable that the NHS already starts to think about what the next 12 months will hold.

The aim at a national level is still, officially, that the provider sector should have returned to balance in a year’s time. But we know the provider aggregate deficit is likely to be touching £900m in 2016-17, meaning providers are already well behind the trajectory needed.

Even getting to that total required huge amounts of unplanned one off savings that are probably going to be difficult to repeat in the year ahead.

So we’re starting to see how tough the challenge is going to be. But the question is: can we really assess just how tough?

Quantifying how hard the challenge will be for providers in 2017-18 is important. If we take a step back and look at the wider story around healthcare spending, constant calls for additional funding risk playing into a “they keep coming back for more” narrative across the media and government.

The response has been that the NHS has already got what it asked for in terms of the money, and it needs to fulfil its side of the bargain and make significant savings.

Without wading into the nuances of that argument here, suffice to say the service needs to not just highlight that the top line funding increases are being dramatically reduced over the rest of the decade, but spell out what “significant” savings mean in financial reality for providers.

For the first time in 2016-17 providers operated under control totals. What is interesting about this is it allows us to quantify exactly what the system is asking providers to deliver in terms of financial improvement.

Some will say tough savings are now up to the NHS to deliver. But if they say this, they must also understand just how tough those savings really are, especially when you consider the reliance on one-off savings in 2016-17

Therefore as we move into next year, we are also able to see if the level of that “ask” is increasing - we can clearly outline just what is being required of providers in the current funding environment.

We recently surveyed provider finance directors – 99 responded, which is 42 per cent of providers. We asked what was the cost improvement programme (CIP) requirement they were asked to deliver for their 2016-17 control total (i.e. how much they would have to improve costs as a percentage of annual revenue). We then asked what the CIP requirement for their control total is next year (or if they didn’t sign up, what this would have been).

The results were clear. This year providers were asked to make cost improvements equaling on average 4 per cent of revenue. This has been very stretching - to put that figure in context, it is double the latest efficiency target set in the national tariff.

However, next year, the “ask” is even greater. Of those who have signed up to a 2017-18 control total (70 per cent of the provider sector), the average CIP requirement is 4.2 per cent, and for acute providers it is 4.5 per cent.

These figures alone would reveal a steady but demanding ratcheting up of pressure on providers to make greater savings next year. However, when viewed alongside what those 30 per cent of providers who did not sign up to control totals next year were asked to deliver, we can see that the scale of the task facing providers next year equals not a gradual change, but a dramatic one.

On average, those 30 per cent of providers were asked to deliver an annual CIP of some 6.4 per cent next year, representing a 75 per cent increase in demanded savings. For acute providers the average ask was even more, at 6.7 per cent.

Five per cent of providers surveyed were even asked to make savings in excess of 9 per cent. Under such circumstances it is hardly surprising, from a governance perspective, that these providers felt unable to agree to control totals.

The survey respondents variously described the savings targets as impossible, unrealistic, undeliverable, unachievable and unaffordable.

For the first time in 2016-17 providers operated under control totals. What is interesting about this is it allows us to quantify exactly what the system is asking providers to deliver in terms of financial improvement.

As we enter the first really tough year of the five year funding settlement ‘U-bend’, with the slim 1.3 per cent real terms rise in the NHS England budget, it is important that everyone understands the context to clarify what this actually means on the ground. These figures provide some of that context.

The fact that NHS Improvement took a cold hard look at the aggregate position of the provider sector and concluded that 30 per cent of providers need to make a 6.4 per cent cost improvement clearly demonstrates that the service is in for a very bumpy year indeed financially.

As noted previously, some will say tough savings are now up to the NHS to deliver. But if they say this, they must also understand just how tough those savings really are, especially when you consider the reliance on one-off savings in 2016-17. They are of a different order completely - even compared to the last few years of fallow funding.

Edward Cornick is a policy adviser on finances at NHS Providers