News / News analysis: Summertime blues

Not so long ago, the summer was relatively quiet in the NHS. Better weather and holidays generally contributed to a reduction in emergency and elective activity. Managers could take a breather, with accounts submitted and the stream of communication from regulators and the Department of Health slowed to a trickle.

But patient activity now remains high in the summer months, and this year guidance from the centre has led many trusts to hastily reopen 2015/16 financial and operational plans.

The overall financial position has deteriorated, leading the Department, Monitor and the NHS Trust Development Authority (TDA) to bear down on spending.

According to the latest HFMA financial temperature check, published at the beginning of July, 63% of providers in England forecast a year-end deficit – a 33% increase on the 47% that ended 2014/15 in deficit. It was widely reported over the summer that the provider sector had forecast a year-end deficit of £2bn. The Department is said to want to cut this in half.

In its annual report and accounts, published in July, Monitor said 70% of the original plans submitted by foundation trusts for 2015/16 were unsustainable. In the same month, Monitor chief executive David Bennett told the HFMA annual FT conference that the foundation trust sector had forecast a deficit of £989m. He insisted savings must be made quickly.

‘I recognise that just because deficits mostly sit with providers doesn’t mean they are the only NHS organisations that need to up their game,’ he said. ‘Nevertheless, current plans are unaffordable, and all providers have to make a major contribution to efficiency improvements, even those that aren’t currently forecasting to be in deficit. This means hospitals leaving no stone unturned, and adopting best and better practice everywhere; avoiding unnecessary expenditure, and adopting new ways of working.’

Monitor and the TDA followed up with letters to foundation and NHS trusts, respectively. These set out a series of savings opportunities, including those announced by the Department in June – curbing management consultancy spending and introducing greater collaboration on the procurement of supplies. Limits on agency staff spending are scheduled to be implemented this month (see box).

Undoubtedly, activity and the safe staffing ratios introduced in the wake of the Mid Staffordshire and Morecambe Bay scandals are contributing to trusts’ financial problems. These are feeding the spending on agency staff.

In turn, agency staff spending is one of the main causes of providers’ failure to meet their cost improvement plans.

Other national initiatives outlined in the letters included the suspension of fines and penalties for admitted and non-admitted referral to treatment standards, backdated to the beginning of the financial year.

However, the letters asked trusts to make further savings – by freezing non-essential vacancies and implementing acute inpatient safe staffing guidance in ‘a proportionate and appropriate way’, for example.

It is understood that the TDA wants a collective response from NHS trusts. All trusts, even those in surplus, have been asked to contribute to a reduction in the overall deficit. Trusts where finances have deteriorated the most have been asked to contribute more.

It is believed that Monitor has treated foundation trusts in a different manner. Foundation trusts planning a significant deficit in 2015/16 have been required to identify further opportunities to cut spending. Monitor provided an estimate of how much these steps should reduce the planned deficit and asked for a reply outlining the impact these and other measures would have on the year-end bottom line. The Monitor estimate is being interpreted as a control total on a trust’s spending.

Foundation trusts planning a surplus have been asked to contribute further to the overall financial position. While these savings are not seen as compulsory, they will have noted changes to the risk assessment framework.

Under the value for money measure added to the governance rating, Monitor would consider investigating if a foundation demonstrates inefficient or uneconomical spend, such as poor control over agency or management consultancy spending, against national benchmarks.

The letters said the Department was planning to introduce controls over capital spending. At national level, the Department has reportedly transferred £185m from capital to revenue. It said that periodically it would move money between different budgets when it is in the best interests of patient care.

‘The government is investing the additional £8bn the NHS has said it needs to implement its own plan for the future and the NHS must deliver its side of the deal by delivering £22bn worth of efficiency savings and putting in place the sort of cost-control measures that we’ve highlighted recently, like clamping down on
rip-off staffing agencies and expensive management consultants,’ a spokesperson said.

But moving capital funds to revenue will raise concerns. ‘It is now glaringly obvious, particularly following the letters from Monitor and the TDA ordering providers to take a range of emergency measures to reduce deficits, that the NHS is in significant financial distress,’ said HFMA director of policy Paul Briddock. ‘The widely reported £2bn forecast provider deficit has been described as “simply unaffordable” and a range of actions are therefore now being taken to reduce the size of this problem as far as possible. The reported £185m being transferred from capital to revenue appears to be one of the measures to do this.’

But he added:  ‘Use of capital funds to underpin revenue shortfalls is a worrying sign
as it is a one-off funding measure being used in the short term to fund recurrent long-term revenue shortfalls.

 ‘Continued use of capital funding to offset revenue shortfalls will also inevitably lead to funds that are supposed to be used to keep NHS assets up to date being used elsewhere, with a corresponding deterioration in the NHS estate.’

NHS Providers lead policy adviser for funding and resources Phillippa Hentsch said trusts have been forced to reopen financial plans they thought were finalised, almost half way through the financial year and at a time when many staff were on holiday.

‘The challenge to trust financial plans comes at a difficult time. These trusts would already have gone through board assurance processes to sign off the plans, as well as initial challenge by TDA and Monitor regional teams. Now, we are already in quarter two of the financial year and they have been asked to revisit their assumptions again.

‘Few boards meet over the summer, providing little opportunity for discussion and agreement. Some providers will need more time to consider as a result, others will say that they can’t make additional savings at this point in the year,
while others may be able to but it will really stretch them and raise questions about longer term sustainability.’

Ms Hentsch added that trusts were finding it hard to deliver their cost improvement plans (CIPs). ‘Trusts are struggling to realise the scale of efficiency savings being asked of them,’ she said. ‘The feedback we are getting from providers at this point in the financial year is that CIPs savings might be behind plan because of the continued increase in agency staff costs.’

Some trusts in the foundation trust pipeline are concerned about how revisions in their financial plans might affect their application, she said.

And foundation trusts that are not currently subject to enforcement action might be concerned whether, if they agree an even
more stretching target for this financial year
but are then unable to meet it, they will be subject to regulatory action.

With the centre tightening its grip,
spending cuts are inevitable, but what impact might they have? ‘I think waiting times will continue to grow as demand soars, but of course providers will do all they can to mitigate this,’ said Ms Hentsch.

‘With limited resources, they will not necessarily be able to put the necessary capacity in place. Providers are already being asked to freeze non-essential vacancies, which means that management and clinical staff are likely to be more stretched than ever.

As the summer turns to autumn, the financial squeeze is truly on.