The new approach to NHS finances in 2016/17

After the £2.45 billion overspend by NHS providers in 2015/16, NHS Improvement and the other national bodies have introduced a new approach to managing NHS provider finances. This approach has a number of key elements.

The Sustainability and Transformation Fund

Additional funding of £1.8 billion has been placed in the new Sustainability and Transformation Fund and is being allocated to trusts to help them manage deficits. This money will be paid out to NHS providers (overwhelmingly to acute providers), but only where they meet a set of finance and performance targets. Sustainability and Transformation Fund payments reduce an organisation’s reported deficit. It was hoped that the £1.8 billion Sustainability and Transformation Fund would be sufficient to return the NHS provider sector as a whole to net balance. But this looks unlikely; NHS Improvement has already set a revised target of a £250 million deficit for the sector.

Control totals

Control totals are the financial targets for each organisation – they set the maximum deficit (or minimum surplus) an organisation is allowed to run. Each organisation has its own control total, which is agreed with NHS Improvement depending on the financial strength of the organisation. Twenty-four NHS providers have not yet agreed control totals. Once Sustainability and Transformation Fund payments are included, the combined control totals for all trusts should have added up to net balance for the provider sector.

Meeting finance and performance targets

If providers fail to meet the finance and performance requirements that underpin their control totals, access to the Sustainability and Transformation Fund will be withheld. In the first quarter of 2016/17, 29 providers failed to meet these requirements and had Sustainability and Transformation Fund funding withheld. While this will increase deficits reported by individual providers, it will not alter the net provider position as the Sustainability and Transformation Fund will be underspent by the equivalent amount and NHS Improvement counts this underspend against providers as a whole. If a provider cannot pay its bills – such as salaries for its staff – without Sustainability and Transformation Fund support it may need to turn instead to the Department of Health for additional financial support.

Latest forecasts

Without further action, NHS Improvement currently forecasts a full-year net provider deficit of £644 million for 2016/17 but is aiming to reduce this to a net £250 million deficit.

For the full report see The King’s Fund September 2016