News / News analysis: Provider pressure

As widely predicted, the foundation trust sector ended the last financial year with an aggregate deficit – the first time this has happened. At the same time, NHS trusts have also reported a net deficit. The end of 2014/15 has brought little relief for providers, with many projecting deficits at the end of the current financial year. It is clear that austerity, rising demand and the need to ramp up quality and safety are putting providers under pressure.

Overall, NHS provider trusts ended the year with an aggregate deficit of £822m. This was made up of an aggregate foundation trust overspend of £349m and almost £473m in the non-foundation trust sector.

The foundation trust sector had planned for a small deficit – £10m – but the higher year-end figure was driven by a number of factors. According to Monitor, £54m related to historical deficits at three trusts prior to their services being transferred or acquired by other trusts during the year.

The NHS trust sector reported an aggregate deficit of almost £473m, compared with a planned £407m deficit – a negative variance of about £65m. An NHS Trust Development Authority (TDA) board paper in May said there was a deficit despite NHS trusts delivering £1.3bn of efficiencies in the financial year.

Fifty-nine NHS trusts (60%) broke even or had a surplus, with a combined value of £141m. This figure includes part-year surpluses recorded in six trusts prior to their authorisation as foundation trusts.

Forty trusts, including three that have ceased to exist and one newly merged NHS trust, reported a combined deficit of £614m.

Monitor figures show that the greatest pressure is being felt by acute foundation trusts. Acutes make up 70% of the foundations in deficit (54 out of 77), with mental health foundations accounting for 18%. The report said 64% of the 84 acute foundation trusts were in deficit. Overall, acute foundation trusts had a deficit of £466m – all other sectors (mental health, specialist, ambulance and community) recorded aggregate surpluses to partially offset the deficit in acute foundations.

Looking in more detail at the FT acute sector, there are variations by size and type of trust, as well as across regions. With a combined deficit of £285m, medium-sized foundations (annual revenue of £200m-£400m) accounted for the bulk of the aggregate deficit for acute FTs. The second largest combined deficit of £150m was in small trusts (revenue of less than £200m). Teaching foundations and large FTs (annual revenue of more than £400m) also overspent, with deficits of £26m and £5m respectively.

However, while 45% of teaching foundation trusts were in deficit, around two-thirds of large and medium foundations and 75% of small foundations overspent.

Regional variation

Foundation trust deficits were concentrated in the Midlands region. There, foundations reported an aggregate deficit of £260m. There were also aggregate deficits in the North (£32m) and the South (£73m). London was the only region to have an aggregate surplus (£16m). While a quarter of FTs in London had a deficit, more than half the foundations in the North, South and Midlands regions recorded overspends.

As in the foundation sector, the proportion of NHS trusts in deficit varies by region. The London and Midlands and East regions currently have 57% and 42% of NHS trusts forecasting a deficit, compared with 32% in the North and 30% in the South. ?

Again, following the FT trend, acute trusts felt the financial strain the most. Draft accounts showed 60% of acute NHS trusts reported a deficit for 2014/15. Acute trusts had an aggregate deficit of £536m – £63m more than planned. Ambulance, community and mental health trusts all reported aggregate surpluses, though community trusts’ £16m aggregate outturn was £15m less than planned.

This was partially offset by ambulance and mental health trusts making higher surpluses than planned. These were over plan by £4m and £9m, respectively. Two community and two mental health trusts finished the year in deficit.

• The sources of additional costs were similar in both foundation and NHS trust sectors:
• Unplanned growth for hospital-based care, particularly in urgent and emergency care
• Significant increase in the use of agency and contract staff (see box)
• Failure to deliver cost improvement plans (CIPs) in full.

The TDA said the impact of rising demand – often paid for at a premium cost – on NHS trusts was more than £245m. Urgent and emergency care was often paid at marginal rate and the deduction in the acute sector was worth about £183m. This was compounded by sanctions totalling £113m in fines and £81m from the business rule on readmissions.

While costs rose, savings were not delivered – the NHS trust sector saved £1.3bn, falling short on cost savings plans by £203m.

The TDA warned that a large proportion of CIPs were being delivered non-recurrently – the forecast adverse variance on recurrent schemes was £361m and this shortfall would be carried forward recurrently into 2015/16.

Foundations reduced controllable operating costs by £1.17bn (2.7%), according to Monitor, compared with £1.23bn (3%) in 2013/14. The 2014/15 figure was £315m less than planned. The regulator was concerned by the under-delivery of CIPs and in particular that 78% of the shortfall was due to pay savings not achieved. These were £247m (30%) behind plan. Overall, non-recurrent CIPs accounted for 19% of savings.

Where next?

So where does this leave provider finances? Historically, trusts have under-delivered on cost savings plans, but Monitor has warned that foundations are finding it increasingly difficult to deliver substantial savings. Only 33 foundations achieved planned CIPs in 2014/15 and 69 under-achieved their plans by 20% or more. With many trusts looking at cost savings of about 4% in 2015/16, this will continue to be an area of focus, as will agency staff spending.

For trusts that opted for the enhanced tariff option at least, the emergency marginal rate payment will be 70% rather than 30% in 2015/16, allowing them to be more adequately compensated, Monitor said.

Chief executive David Bennett added: ‘The last financial year was exceptionally challenging for the foundation trust sector, and it is clear the current one is following the same pattern. The sector can no longer afford to operate on a business as usual basis, and we all need to redouble our efforts to deliver substantial efficiency gains in order to ensure patients get the services they need.’ This will mean significant changes and Monitor will step up its efforts to provide practical help and support to foundation trusts that are struggling both financially and operationally.

NHS Providers chief executive Chris  Hopson called for clarity, honesty and realism in three key areas:

• What can be delivered in the current spending plans
• How new priorities can be achieved
• The time available for transformation.

The first could lead to a reassessment of what the NHS provides and how, he said. ‘Many commentators are asking whether the current NHS service offering and standards are sustainable on current NHS funding levels and that this leaves a choice of either raising those funding levels or changing the service offering,’ said Mr Hopson.

He insisted that additional requirements, such as seven-day operation and new urgent and emergency service models, must be properly costed and funded before they are introduced.

‘We need to agree a deliverable finance and performance recovery trajectory at both national and local level,’ he said.

King’s Fund policy director Richard Murray called on the government to take action to support NHS finance.

‘There is a real prospect of deficits snowballing and, unless the government finds extra money, an accelerating decline in NHS performance and a deterioration in patient care,’ he said.

Rob Webster, chief executive of the NHS Confederation, added: ‘We will need to count on transformation funding delivered up front and action to prevent social care from being cut, in order to prevent NHS organisations from being knocked off course,’ he said.

The strain on NHS finances is clear. But NHS funding levels were debated during the election and, for now, it seems the figure has been set at an additional £8bn a year by 2020.

Tweaks to the tariff and business rules in this and future years could offer trusts some respite, but most of their focus will be on reducing spending and finding new models of care that enhance quality, safety and efficiency.