News / News analysis: Temperature rising

After a difficult 2014/15, there have been warnings that the financial challenge this year will increase significantly. New work from the HFMA confirms these fears, with three out of five trusts and foundation trusts forecasting deficits. Finance directors want greater realism over the level of savings that can be achieved and have raised concerns again about the lack of system leadership across health economies.

The HFMA published its latest NHS financial temperature check in July, setting out the financial performance of local bodies in England (NHS providers and clinical commissioning groups). It reiterated the figures for 2014/15 published by Monitor, the Trust Development Authority and NHS England at the end of May – a £151m underspend in the 211 CCGs and a net provider deficit of £822m.

Some 47% of providers overall (51% of foundation trusts and 40% of trusts) ended the year in the red, with the acute sector feeling the pressure most. Fifty four acute FTs and 36 acute trusts contributed to a combined deficit of £1.14bn, offset broadly by surpluses in the non-acute sector. There were also 27 non-acute FTs and trusts in deficit in 2014/15, a more than four-fold increase compared with 2013/14.

London appeared to buck the general trend somewhat, with proportionally fewer trusts in deficit, although the HFMA report said this masked a difference between ‘largely financially sustainable FTs in inner London and the outer London NHS trusts that are struggling to balance their books’.

The CCG underspend was not split evenly across the country. It included £156m underspend relating to continuing healthcare, which is now due to be paid in future years, and a £66m shortfall in quality premium payments. Without these items, there would have been a small net overspend.

According to the HFMA survey of nearly 200 finance directors for the temperature check, most CCGs produced a better outturn than budget, while the position was reversed for the majority of provider trusts. For providers, the main causes for a worse outturn were increases in agency staff costs (72% of providers), driven by Care Quality Commission recommendations, and under-achievement of planned savings (55%). A few trusts improved performance against plan, though for some this involved non-recurrent funding from the TDA.

CCGs also reported cost increases above plan, within their overall underspent position, singling out growth in continuing care costs (despite pushing some payment into future years) and contract over-performance by providers.

There have been numerous warnings that the difficult financial position in 2014/15 would be followed by an even more difficult 2015/16, and finance directors have now confirmed this. Some 63% of English providers forecast a deficit at the end of the current year, according to the survey – a 33% increase on the 47% of trusts that finished 2014/15 in deficit.

There was optimism that some of these would expect to return to surplus in 2016/17, although the HFMA report warned that trusts often revise their medium-term financial plans closer to the beginning of the actual year.

Acute pressures

Again, problems are most severe in the acute sector – 77% of acute (85% of acute/community and 81% of acute/specialist) expected to end the year overspent. This compares with community/mental health trusts (29%), mental health (43%) and specialist (50%). No community trusts are forecasting a deficit. The figures would represent an increase in the number of organisations with deficits in most sectors. More than 80% of CCGs forecast a surplus, although the report said the ‘CCG forecast net surplus is unlikely to be sufficient to cover the net deficit in trusts’.

Risk associated with achieving the 2015/16 plans were assessed as high or medium by finance directors. Just 16% of CCG and 10% of trust finance directors rated risk as low. Key risks reflect recent cost drivers – slippages in cost savings (74% of directors), increased demand (64%), emergency activity (55%) and spending on agency staff (50%).

Finance directors were also asked a broader question on the risks to the overall financial stability of their health economy. Many responses reflected the risks to organisation-level finance plans – slippages on cost saving schemes, rising emergency care activity and demand in general. But nearly half of finance directors also flagged up concerns about social care financial constraints, such as delayed transfers of care, and integration.

CCGs have similar plans to meet the financial challenges – 80% plan integration of NHS services, 76% plan some form of integration with social care and 68% are looking to invest in primary care.

Trust plans also suggest common tactics – 87% of trust finance directors are targeting agency staff savings, 81% aim to reduce procurement costs and 60% are looking to reduce unnecessary clinical variation.

Finance directors agreed organisational stability depended on working jointly with other organisations, but there were barriers to this approach. Some CCG chief finance officers said they had limited influence on the cost of unplanned demand in provider organisations. Others felt providers can become financially challenged as a result of conflicting priorities – for example, where national policy changes are issued after local plans are agreed.

Some providers felt they struggled to have an influence compared with bigger organisations in a health economy. But both commissioning and provider finance leads agreed the lack of a ‘coordinated approach to system management’ was a problem, particularly on reconfiguration issues. It was also felt that commissioner and provider regulatory regimes could conflict.

There was concern that financial problems in some organisations could lead them to prioritise the interest of their organisations above those of the health economy. One respondent suggested the solution was for CCGs and trusts to ‘break the rules together’ – working more innovatively to address financial problems at the health economy level.

Although there have been well publicised difficulties with the referral to treatment and accident and emergency four-hour wait targets, 92% of finance directors did not expect service quality to deteriorate – 26% actually said quality would improve in the current year.

Unsurprisingly, given the forecast deficits, most finance directors believed their organisations did not have enough resources to support their long-term financial plans. The lack of pump priming investment funds was seen as a key challenge, alongside the fact that all additional funds were committed to the better care fund. Such initiatives were also consuming significant levels of senior management capacity.

Funding concerns

There was concern about the timing of the promised £8bn funding rise by the end of the current parliament. The £8bn should bridge the gap between the total estimated £30bn savings target for 2020/21 and the £22bn the NHS is expected to deliver through efficiency. Finance directors believed the additional funds should be found and allocated as soon as possible.

A final concern was the continuation of unfunded policy announcements, such as the expectation that seven-day services could be delivered within existing financial resources.

Asked to identify what would help them deliver improvements, finance directors called for more realistic savings targets and more realistic expectations for reducing activity as part of better care fund initiatives. Echoing earlier temperature checks, many directors also called for change in the payment system.

HFMA policy and technical director Paul Briddock said the survey underlined the extreme challenges for the NHS. ‘The Five-year forward view sets out aims to deliver changes the finance community fully supports – more integration of services and revised pathways that optimise quality and cost-effectiveness,’ he said. ‘But we need faster progress towards achieving these goals. We need some financial support to enable this to happen. New ways of working can deliver sustainable, high-quality services. But these services cannot be switched on overnight. There will be some double-running costs and a need for investment.’

Mr Briddock added that more traditional efficiencies – from procurement, back-office arrangements, rostering and use of agency staff – would still be needed. But these would not be enough on their own to address the longer term financial problems arising from increasing demand and an ageing population.

• The NHS financial temperature check is included with this issue and can be downloaded from www.hfma.org.uk