News / Balancing act

It has been clear that the financial position of NHS providers in England has been deteriorating for some months now. Despite the tough outlook earlier in the financial year, finance directors were confident that quality of patient services could be maintained. In the HFMA NHS financial temperature check in November, more than 80% of clinical commissioning group and trust finance leads said quality would improve or stay the same.

However, new figures published in February show the financial position continues to worsen and appears to be having an impact on the quality of services to patients.

Both the King’s Fund quarterly review and the combined Monitor/NHS Trust Development Authority (TDA) quarter three figures were published in February. They show broadly the same picture in terms of provider finances. The King’s Fund estimated that NHS trusts would end 2015/16 with an aggregate deficit of £2.3bn – £500m more than the control total of £1.8bn agreed with the Department of Health.

The year-to-date figures from Monitor/TDA make no better reading. They show provider trusts reported an overall deficit of £2.26bn nine months into the financial year. This was £622m worse than planned and 75% of providers reported a deficit (179 out of 240).

Based on the current run rate, Monitor/TDA said the financial performance trajectory indicated that the full-year deficit could be more than £2.8bn. There was an ‘urgent need for sustained collective action’ to deliver the year-end control total of £1.8bn.

Providers have subsequently identified £452m of additional financial improvement opportunities – including capital to revenue transfers, operational improvement and technical adjustments – reducing the forecast outturn to £2.37bn.

However, some commentators believe the cost control measures being put in place to reduce the deficit are now adversely affecting patient care. Certainly, less than 91% of A&E attendees were treated or admitted within four hours in Q3. Demand was greater than a year earlier, with just over 5.1 million attendances – about 95,000 more than the same quarter in 2014/15.

More than a million patients attending major A&E departments required admission in Q3, but delayed transfers of care meant more than 98,500 had to wait more than four hours for a bed (2% more than in 2014/15).

The elective waiting list reached 3.1 million patients and for the first time the service failed to meet the 92% referral to treatment target – 91.6% in December.

Jim Mackey, chief executive designate of NHS Improvement, which will bring together the two national bodies from 1 April, said: ‘This performance will be very disappointing for providers, and shows the range of difficulties they’re facing. Despite this, providers are making progress on improving their finances whilst also providing more treatment, to more patients with more complex care needs than ever before.

‘However, further improvements will be required by the whole NHS at pace and scale to tackle the current financial and operational challenges it faces.’

Staff costs

There are many reasons for the deficit, but spending on agency staff remains one of the key cost pressures. According to Monitor/TDA, by quarter three providers had spent £2.72bn on agency and contract staff – £1bn more than planned, though this was partly offset by savings on salaries for substantive staff. Overall, agency staff spending made up 7.5% of total pay costs – an improvement on the 7.8% reported in the previous quarter.

While providers planned to reduce their reliance on agency staff in 2015/16, recruitment difficulties and the maintenance of safe staffing levels in the face of rising demand led to a year-on-year increase in agency costs.

Monitor and the TDA have introduced measures to limit agency spending since November last year, including a ceiling on agency nurse spend, a mandatory procurement framework and hourly rate caps. However, more than half of trusts in the King’s Fund survey were concerned they will breach new caps on agency spending.

The national bodies said that, though it was early days, the monthly spend on agency staff appeared to have stabilised over the past four months. However, they acknowledged that costs were too high and would take some time to come down.

In a separate report, Monitor said that in the six weeks following the introduction of the new rules, between 180 and 201 of the 228 trusts subject to the rules reported paying staff in excess of the price caps. But the number of individual shifts in excess of the caps fell steadily in December across all staff groups, including key groups such as nursing, midwifery and health visiting. Trusts expect to spend around £3.5bn on agency staff this year.

Non-pay costs were also a concern, chiefly delayed transfers of care, highlighted as a major issue in the Carter efficiency and productivity review. The quarter three report said there had been a 10% year-on-year rise in delayed transfers during the quarter.

The direct cost of this was in the region of £104m, but Monitor and the TDA said other estimates put the cost at much more. Delayed transfers can lead to constraints on bed availability and the cancellation of elective procedures, affecting quality, trust income and spending, the report added.

Trusts failed to deliver their cost improvement plans. They had made £1.94bn of savings (£257m less than plan) by the end of Q3. 

Improvement challenge

NHS Improvement said providers must improve their finances and services to ensure patients receive good-quality care. A turnaround in the underlying financial position and significant technical measures would be needed in Q4 if the sector was to achieve the £1.8bn control total.

It added that boards must explore all legitimate and possible savings, particularly in areas such as accruals and bad debt provision. There was also slippage in capital spending.

At Q3 it was £2.4bn – 32% less than planned – offering scope for a one-off capital to revenue transfer of £320m, part of the £452m savings identified. Further slippage is expected in the fourth quarter.

While attention is paid to the provider sector deficit, the Department will want to ensure health as a whole does not end the year in deficit. While the commissioning sector is pulling out all the stops (see box) to contribute to the overall position, in February the Department received a helping hand from other parts of Whitehall.

The Treasury announced that the 2015/16 Department of Health resource budget would be increased by £205m. It said the additional funding would cover central pressures, mainly a result of the pharmaceutical price regulation scheme rebate from manufacturers being £156m less than expected. The estimates also show the Department will make a £945m capital to revenue transfer.

Health Foundation director of research and economics Anita Charlesworth (right) said ‘ballooning’ deficits were now too big to be managed within the spending envelope previously agreed. ‘This is an indication of the dire state of NHS finances halfway through its decade of austerity. The capital transfer will help the NHS avoid an immediate crisis but will not solve its financial woes. The NHS urgently needs practical support to help it deliver productivity gains.

‘But there must now be serious doubts about whether it can realise the £22bn of savings required by 2020/21 while also maintaining the quality and range of services on offer.’

King’s Fund chief economist John Appleby, said the service faced a huge financial challenge. ‘Even with the additional funding recently provided by the Treasury and a big switch from capital to revenue spending, it is touch and go whether the Department of Health will be able to balance its budget at the end of the year. At the same time, performance is deteriorating and key targets being missed with increasing regularity, and increasing concerns are being raised about the quality of patient care. This is shaping up to be a make or break year for the NHS.’

With further savings to be found in 2016/17 and beyond, the NHS will be keen to ensure quality does not slip while it brings it books back into balance. 

Commissioner contribution

The commissioning sector is continuing to identify further savings to try to keep the health sector as a whole in financial balance.

In the latest NHS England board report, which covers quarter three figures, chief finance officer Paul Baumann (pictured) said the full-year forecast was a commissioning underspend of £295m after adjustments. This is an increase on the forecast at month eight (£145m). Mitigations identified by local, regional and national commissioners could increase the underspend to £413m.

The month nine figure included an expected clinical commissioning group overspend of £22m, as well as underspends of £44m in overall direct commissioning and £268m in central costs. The report said a large proportion of this central cost underspend was the
release of centrally held depreciation offset reserves of £78m.

The central costs underspend also includes £156m of slippage in NHS England programmes, which have been realised to contribute to the overall financial balance across the Department of Health group. Spending on legacy continuing healthcare claims was lower than expected, at £164m.

Commissioners predict £2bn of QIPP quality and productivity gains will be delivered against £2.2bn planned.