The Deficit

The past two years have seen the NHS provider sector (NHS trusts and foundation trusts) struggling to cope with increased demand, due to a growing and ageing population, plus rising costs.

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As a result in the third quarter of the 2015/2016 financial year the NHS provider sector reported a combined deficit of almost £2.3 billion and this is projected to reach £2.8 billion by the end of the financial year (April 2016).  This dire financial situation encompasses the entire NHS provider sector in England; it is not limited to any particular geographical area or type of trust. According to a March 2016 report by the think tank The Health Foundation  – “[the deficit] is a systemic issue, with nearly half of trusts reporting a deficit in 2014/15, and over three-quarters in deficit by quarter three of 2015/16.”

Yet just two and a half years earlier in the 2012/2013 financial year the NHS provider sector reported a surplus of £577 million. The deficit is also not confined to NHS trusts; although the situation is not as severe, clinical commissioning groups (CCGs) are beginning to fall into deficit. In the financial year 2014/2015 19 CCGs reported deficits, but in February 2016 it was predicted that this will have increased to 30 CCGs by the end of the financial year 2015/2016 with a combined deficit of £0.5 billion.  These deficits reported by so many NHS organisations are likely to continue as there is plenty of evidence that the Government’s funding plans for the NHS do not provide the money that is needed to maintain the NHS as demand and costs rise over the next few years.

£8 billion from the Government

Around the time of the last election the Conservatives pledged with much fanfare an extra £8 billion for the NHS over the next five years to not only protect the NHS, but improve it as well. However, in March 2016 it came to light that the £8 billion might not be all that it at first appeared. The figure of £8 billion was reportedly taken from a report by Simon Stevens, CEO of NHS England; however, David Laws, a former Liberal Democrat MP and chief secretary at the Treasury, asserts that £8 billion was not the original figure Stevens was seeking. In Laws’ book, excerpts of which were published in The Daily Mail, he reports that Stevens originally asked for £15-16 billion extra from the government.

The Government is reported to have exerted pressure on Stevens to amend his report to get it down to the much smaller £8 billion amount (£30 billion a year funding gap by 2020, that could be made up from £22 billion a year in efficiency savings, leaving the £8 billion a year for the government to make up). Laws notes in his book that this pressure resulted in the supposed possible efficiency savings being increased to “totally unrealistic” levels. So in fact the Conservatives already knew from Stevens’ report that £8 billion would not be enough to protect the NHS and, as Laws noted in an interview, the £8 billion pledge was therefore “disingenuous”.

No plan for black hole in finances

Parliament’s own spending watchdog, the Public Accounts Committee, reported in March 2016 that the NHS in England did not have a convincing plan to fill the £22 billion “black hole” in its finances by 2020/2021.  The report noted the “serious and persistent financial distress” that some acute trusts are in, that deficits were “spiralling” and the current payment system is “not fit for purpose”.

As well as relying heavily on expensive agency staff the NHS trusts were trying to meet unrealistic savings targets. Meg Hillier, the chair of the committee, said the government had done little to support trusts facing financial problems. “Without urgent action to put struggling trusts on a firmer financial footing there is further serious risk to services and the public purse,” she said. “In particular, it is unacceptable for senior government officials simply to point to excessive agency costs as a source of trusts’ difficulties….It is the job of those officials to take action to control spending on agency staff, and to address its underlying causes. The use of agencies is a sticking-plaster solution to deep-rooted problems with NHS workforce planning.” The report also noted that the targets for 4% efficiency savings set by Monitor and NHS England were “unrealistic and have caused long-term damage to trusts’ finances”.

Funding in 2016/17

Despite the overwhelming evidence that the NHS is not receiving enough money, 2016/17 will see no let-up for the beleaguered trusts.  In January 2016 Monitor and the NHS Trust Development Authority issued the financial targets for 2016/17; these targets must be agreed if the trusts are to gain a share of the £1.8 billion sustainability and transformation fund. One in three trusts refused to accept these targets and many of those that did accept did so with caveats. Then in March 2016, HSJ reported that the regulators (Monitor and the TDA) are requiring a major reversal in the financial performances of many of the acute trusts in 2016/17. HSJ obtained figures for the financial targets for 47 of 136 acute trusts; seven of the trusts will have to improve their deficits by more than £10 million compared to 2015/16, even after money from the sustainability and transformation funding is taken into account. To meet these targets the trusts are going to have to make some spectacular savings somewhere.

The finances of hospital trusts are not helped by the system whereby hospitals are fined by CCGs for missing key NHS patient treatment targets; this is around £600 million per year. The fines push trusts already in deficit even deeper into debt. The fines are levied by the CCGs but Trusts claim that the fines hinder their ability to meet targets.

Reorganisation spreads debt

As part of the government’s Five Year Forward plan to 2020/21, the government has required health and care systems in distinct geographical areas to produce a multi-year Sustainability and Transformation Plan (STP), showing how local services will evolve and become sustainable over the next five years. There are 44 of these STP areas, however according to the HSJ some of these STP areas are in such financial difficulties that they will struggle to get out of deficit. Only one STP looks to have a combined surplus, with about a third with a deficit of more than 4% of turnover. According to Anita Charlesworth, chief economist at the Health Foundation, “Turning that sort of financial performance around when there are so many other underlying issues is an enormous if not impossible task.”.  Each area must develop a sustainability and transformation plan by June 2016, which will set out how it is to manage demand, increase provider efficiency, reconfigure services and return to financial balance.