News / News analysis: Temperature rising

NHS provider finance directors are in no doubt about their main cost pressure this year – staff, and in particular agency staff. They are also sure why these costs are rising as they react to rising demand and the safe staffing agenda.

The HFMA’s second NHS financial temperature check, which surveys NHS finance directors from both provider and commissioning organisations and was first published in June, underlines the real financial challenges facing the NHS right now.

The position is well documented. Quarter two figures show that foundation trusts and NHS trusts together are forecasting a net deficit of £553m by the year end. And on top of this, NHS England is forecasting a significant overspend against its planned position (which already uses previously built up surpluses). As NHS England chief finance officer Paul Baumann admitted to the Commons Health Committee last month, the size of providers’ deficit and NHS England’s reduced surplus position mean the ‘total vote is very delicately poised between being in balance and not quite in balance’.

Finances are clearly getting worse. Nearly 75% of nearly 120 provider finance directors and 39% of commissioning chief finance officers (from 64 clinical commissioning groups and eight area teams) forecast their year-end position will be worse than last year. And for nearly 40% of all finance leaders, this forecast is worse than the planned position for 2014/15.

For providers, the main drivers are pay costs and under-achievement of cost improvement programmes. Commissioners also point the finger at efficiency shortfalls – on their quality, innovation, productivity and prevention (QIPP) plans – and increases in acute contract costs and prescribing.

Agency staff costs stand out as the key problem for providers, with more than 80% of finance directors identifying it as one of their main cost pressures. Increasing nursing staff numbers and rising demand were the other stand-out provider pressures, with around 60% of directors singling out these pressures.

Reducing agency staff costs has been a staple part of most providers’ cost improvement programmes for a number of years. But it is a constant battle, rather than a one-time fix and there is a clear indication that trusts have collectively had to turn to agencies to meet staffing requirements this year.

Monitor’s Q2 report said that FTs’ collectively had planned for a 40% reduction in contract and agency spend, but in fact overspent the planned budget of £377m for the first six months by more than £450m – a 120% overspend.

Finance directors identified a number of clear reasons for the staff cost pressures. One director said there were costs associated with ‘quality investments’ and in particular the safe staffing agenda that has emerged following the Francis inquiry and the Keogh review of trusts with high mortality rates.

Subsequently NHS England has issued guidance on nurse and midwife staffing, the National Institute for Health and Care Excellence has issued its first safe staffing guideline, and the Care Quality Commission is putting a focus on staffing levels for hospital inspections.

It is clear that providers are struggling to recruit and retain staff to populate their ward establishments. Several finance directors pointed to a lack of qualified nursing and medical staffing to fill vacancies, and increasing competition among providers for these scarce staffing resources.

There are problems across the board with recruitment, but finance directors identified particular problems in some specialist areas – cardiac scrub nurses and intensive care nurses were just two examples given of specific recruitment hot spots.

It is not just nursing staff,  which have been the focus for much of the media coverage about safe staffing levels. Medical staff are also causing recruitment headaches. Junior doctors in general are driving agency and locum spend, with one finance director saying that short notice from deaneries about placement gaps meant trusts were having to pay premium costs.

Again, a number of specialist medical areas were identified as creating particular problems,  including elderly care, gastroenterology, radiology, community paediatrics and emergency medicine.

Several finance directors blame a lack of national planning on workforce numbers as a key contributor to staff shortages and pressures.

And to compound staff shortages, providers say that some staff are being tempted to swap permanent roles for agency work because of a perception of increased rewards and greater flexibility. Providers close to London also identify problems with staff leaving to take advantage of the London weighting offered in neighbouring trusts.

Monitor’s Q1 report said the 40% planned reduction on contract and agency spend in 2014/15 and the 50% planned reduction in 2013/14 were in contrast to actual increases in agency staff costs of about 20% a year over the last two years.

‘This is not an easy issue,’ said Paul Briddock, HFMA policy and technical director. ‘There are lots of forces that impact on the need for trusts to use agency staff. Establishments may be increasing in response to the safe staffing agenda. Increases in activity – or changes in acuity mix – can push staffing needs beyond these establishment levels. And there are clear difficulties in recruiting and retaining staff.’

He said that agency and bank staff remained a useful tool in meeting variations in staffing requirements and coping with absences. But clearly trusts have to ensure they plan properly and set achievable savings targets. And they need to share best practice and make the most efficient use of staff, he said.

‘Commissioners also have a role in understanding demand and looking to reduce unnecessary activity,’ he said. ‘And national workforce planning is absolutely essential so that when health providers go to the market to fill vacancies, there is a sufficient pool of staff from which to appoint.’

The survey indicates that these pressures are having an impact on financial positions, not quality – although some finance directors pointed out that permanent staff often deliver a higher quality service than agency staff who may not know a ward or department. Nearly 95% said that quality will either improve (44%) or stay the same (51%) this year. But there are signs that this confidence is reducing, with about 13% of directors expecting quality levels to fall in 2015.

On the back of finance directors’ views, the HFMA believes there must be recognition that the NHS needs above-inflation funding increases to meet current challenges (see box). But it believes specific action is needed to support trusts in addressing the increase in agency staff costs. This is a widespread problem that ‘individual trusts cannot solve’, it said. There needs to be a review of the national system of workforce planning and training.

Temperature check results in full are available at www.hfma.org.uk/nhstemperaturecheck/ . A summary of the results can also be downloaded from this page.