News / News analysis: The right time to go public

Is it time for politicians and the public to face up to the reality of the NHS financial position? Seamus Ward reports

A call for an ‘honest public debate’ about NHS finance is a hardy perennial, so few eyebrows were raised when NHS Confederation chief executive Mike Farrar called for such a discussion recently. But what it lacked in originality, it made up for in tone and timing, with Mr Farrar insisting the NHS had to make efficiency gains on a greater scale than ever before in each of the next four years.

Mr Farrar’s belief is that the decisions that must be made, particularly those on hospital reconfiguration, are so great they can only be taken with the informed consent of the public.

He has been lobbying politicians to be honest about the scale of the financial challenges faced by the NHS. ‘The purpose is simple – to secure a mandate from the public for the planned changes we need to make, rather than leave us with no option but to make unplanned cuts to balance our books,’ he says.

Yet during the party conferences, at the height of his efforts, politics intruded. ‘My sense is that we are starting to secure this commitment from the government,’ he says. ‘But the politics around the party conferences have led to some claims – for example, on private finance initiative costs – that do not help the public to understand the relatively small contribution they make to our overall financial challenge. They obscure the real scale of the problem.’

He acknowledges that the government has taken an important step in its decision to allow the controversial reconfiguration at Barnet and Chase Farm Hospitals NHS Trust, but it will have to show this political courage again and again as the service balances financial savings and quality improvements.

‘An honest public debate about NHS finances also allows the public themselves to be engaged in thinking about how they use NHS services and how they can and should help us to determine relative priorities for expenditure,’ continues Mr Farrar.

‘Finally, a better understanding of the nature of the financial challenge – 4% efficiency for four years, when the best we have ever achieved in a single year of the NHS history is 2% – also allows us to get into an open and honest discussion with staff on pay, terms and conditions and job security.’

It is fair to say that in its latest quarterly review, the Department of Health in England is honest about the scale of the challenge and their implications for the future delivery of services. According to The Quarter, which covers the first three months of the current financial year, ‘In future we are likely to see more care provided closer to home, more empowered patients in control of their own care, a smaller but more specialised acute sector with lower unit costs, and greater standardisation of care pathways.’

It also sets out, broadly, how primary care trusts are seeking to deliver £5.9bn of savings in the current financial year, with around 50% being made in acute care (see table). The Department will report on progress in the next issue of The Quarter, which is due before the end of the year.

The Department remains cautiously optimistic that efficiency measures are beginning make a difference – pointing out, for example, that the NHS made efficiency savings of £4.3bn in 2010/11 (based on Audit Commission figures that assume no double counting). Non-elective activity rates were 1.7% lower in the first quarter of the current year than in the same period in 2010/11. GP referrals were 3.6% lower, and it is forecast to fall by 2.4% over the year.

Signs of stress

Overall, PCTs and strategic health authorities are forecasting a surplus of £1.165bn for 2011/12, while NHS trusts expect an overall surplus of £61m. Yet the NHS in England is potentially showing signs of stress – although it is not alone among UK health services (see News, page 5). 

Three PCTs are forecasting an aggregate deficit of £56m and six trusts have a combined forecast deficit of £170m. This compares with two PCTs reporting a gross deficit of £18m and seven trusts with a gross operating deficit of £103m in their final accounts for 2010/11.

While the position may be recovered over the remainder of the year and a reduction in surpluses has been planned, the fact remains that surpluses are lower and deficits higher than three months before.

The King’s Fund quarterly monitoring report, which surveyed 23 NHS finance directors, highlights the significant pressures facing the service. Around half of the finance directors questioned are concerned (eight directors) or uncertain (four) about whether their trust would hit this year’s productivity targets. But none believes their trust will have an operating deficit and 20 are confident the measures taken to meet the targets would not harm clinical quality (the remaining three are unsure).

‘Looking ahead, the challenge will be to maintain performance and deliver productivity improvements as finances tighten further,’ says John Appleby, the organisation’s chief economist.

‘Six months into an unprecedented four-year period of financial restraint, the pressures that are already emerging in a small number of trusts highlight the scale of the challenge facing the NHS.’

Foundation trusts are also showing signs of pressure in the tighter financial environment. According to Monitor, 12 trusts are in significant breach of their terms of authorisation, including two added in October. Financial difficulties have played some role in eight of these trusts being in breach.

Of the latest two, one is due to financial problems. The regulator says it had concerns over Peterborough and Stamford NHS Foundation Trust’s financial viability, governance and ability to exercise its functions effectively, efficiently and economically.

Work on the trust’s turnaround plan had not progressed as quickly as needed – the trust also had to deliver the government’s efficiency target and support the costs of its private finance initiative. However, Monitor decided against formal intervention at the trust.

Financial performance will have to improve in some trusts if they are to obtain foundation status, according to the National Audit Office. In a report on the FT pipeline, the NAO said the Department believed 48 of the 113 remaining NHS trusts were unlikely to meet Monitor’s financial viability tests.

At least 20 trusts face such substantial problems that they are not financially or clinically viable in their current form, while an initial review of 22 trusts with major private finance initiative schemes identified six trusts for which the scale of debt repayments, together with other financial problems, means they are not currently viable.

NAO head Amyas Morse says: ‘Many of their problems stem from longstanding issues around financial viability, underlying performance and clinical quality. The Department will have to tackle these issues head on if high quality and affordable health services are to be available to all.’

NHS finances overall may look healthy and there are promising initial signs that QIPP measures are working, but there are a lot of difficult decisions to be made – decisions that require sober discussions and a well-informed public.