How is the NHS performing?
Our latest survey of finance directors carried out during the first quarter of the new financial year reveals an extremely challenging financial situation for most NHS organisations. A continuation of limited growth in national funding, increased demand, rising costs, real price cuts and the prospect of large cash transfers to the Better Care Fund make 2015/16 the most difficult year for the NHS this century.
With 114 providers ending 2014/15 in deficit and with a net overspend of more than £800 million, our survey suggests that 66 per cent of all provider organisations are forecasting a deficit this year – with an unprecedented 89 per cent of acute trusts expecting to overspend. Estimates by NHS Providers indicate that overspending by all trusts could amount to more than £2 billion by April 2016 (Wintour and Campbell 2015). Following the latest forecast outturn for foundation trusts of £989 million, Monitor has warned the sector that their freedoms could come under pressure unless they demonstrate faster improvements in productivity (Monitor 2015).
The national funding context
- Nationally, funding remains very tight. This year so far the NHS across England received a cash increase of around £3.4 billion – equivalent to a rise after inflation of around £1.8 billion. Although double the average real increases per year in the last parliament, not only does this 1.6 per cent rise remain low historically, but the planned transfer from the NHS budget to the Better Care Fund will absorb all of this year’s budget increase. The extent to which the opportunity cost of this investment in the Better Care Fund will be balanced by reductions in demand for the NHS and will lead to overall better care for patients remains to be seen.
For the rest of the new parliament, the government’s pledge of a real increase of £8 billion by 2020/21 (similar to the increase over the last parliament), represents an average annual real increase of just 1.3 per cent. The actual staging of this increase will be important; smaller increases now – even if balanced with larger increases later - will be problematic for the NHS as it grapples with its current financial challenges.
Given this national funding context, it is perhaps not surprising that our latest survey of 153 NHS finance directors suggests that this year will be the most difficult for the NHS for many years.
Financial prospects for 2015/16
The seriousness of the financial situation this year has been underlined by a raft of national actions this month designed to try to contain overspending and deal with the deficit position from last year. While emphasising at this year’s NHS Confederation annual conference that there is ‘...no likelihood that the NHS will receive additional infusions of cash this year’, the chief executive of NHS England, Simon Stevens, announced caps on agency spending, management consultancy expenditure and senior management pay, as well as a termination of the National Institute of Health and Care Excellence (NICE)’s work on safe nurse staffing (to be replaced by work overseen by the Chief Nurse, Jane Cummings). And following Sir Bruce Keogh’s review of waiting time targets, while the four-hour accident and emergency (A&E) target remains, two elective admission targets are to be abolished; this will help hospitals to focus efforts to reduce the time patients spend still waiting without being penalised and will also limit demand.
In addition, Lord Carter published an interim report of his efficiency review (Carter 2015), the Care Quality Commission will in future take account of ‘use of resources’ in its review of provider performance and Monitor will make changes to its risk assessment process. Together with action on ‘troubled heath economies’ through the new success regimes and action to push changes in services in line with the NHS five year forward view, it is clear that the pendulum has swung away from ‘quality trumps finances’ and towards much tougher action to assert financial control.
Whether these and other actions have the intended effect remains to be seen. But the views of finance directors in the first quarter of this year are sobering: 66 per cent of trust finance directors in our survey forecast an overspend by the end of this year; for acute trusts this rises to 89 per cent.
As the figure below shows, this represents the worst end-of-year forecast since our QMR surveys started.
QMR 1-4 based on a panel of 50 finance directors.
- The reasons for this very gloomy forecast are, as ever, a combination of income and expenditure pressures. On income, following the rejection of the 2015/16 Payment by Results tariff schedule by NHS providers and the acceptance – albeit very reluctantly by many trusts – of revised proposals, 211 out of 240 trusts remain under pressure with the ‘enhanced tariff option.’ This option continues the past year’s real reductions in tariff prices (which have been cut by around 9 per cent in real terms since 2010/11) and a variety of financial penalties designed, for example, to reduce emergency activity. The remaining 29 trusts on the ‘default tariff rollover’ remain on last year’s tariff prices and arrangements, while also forgoing any commissioning for quality and innovation (CQUIN) payments (worth around 2 per cent of clinical income) (Monitor and NHS England 2015).
ETO = ‘enhanced tariff option’
The continued downward pressure on prices and income leaves providers with the bulk of the financial risk in most health economies; only 10 per cent of CCGs forecast an overspend – similar to previous surveys. Moreover, with around 60 per cent of providers in our survey reporting that their end-of-year forecast includes the use of reserves and loans, it is clear that tactics to contain spending are not sustainable. Somewhat worrying is the fact that of the 35 mental health trusts in our survey (67 per cent of all mental health trusts), nearly 30 per cent said they were either very or fairly unconfident that commissioners will increase their funding in real terms this year in line with commitments in the Forward View (NHS England 2014). CCGs were more positive – although just under 10 per cent were also concerned about this commitment.
Even though the historic rise in A&E attendances appears to have plateaued, recent trends suggest that demand for secondary care services remains largely unchanged, with referrals, elective and non-elective activity all rising. Increased activity normally generates increased income, but reduced prices and the use of financial penalties to encourage reductions in some activities such as emergency admissions serve to increase financial pressure rather than income. Indeed, as the Trust Development Authority (TDA) have reported, fines and other financial penalties cost trusts around £370 million last year (NHS Trust Development Authority 2015) – equivalent to around £900 million if scaled up to include foundation trusts.
Trusts are also facing increases in costs. The Litigation Authority, for example, has increased its premiums substantially this year, which will affect some trusts particularly. Agency costs continue to increase too as trusts recruit to fill nursing and other clinical posts; three-quarters of providers we surveyed planned to increase their permanent nursing workforce this year – though many commented that nurses were in short supply. Although lacking detail at the time of the survey, just over 60 per cent of trust directors did not think the proposed controls on agency staff would reduce their agency spend, while a sizeable minority – around a quarter – thought such controls could affect their ability to recruit the staff they needed to provide safe care.
Finally, making ends meet through cost improvement programmes remains very difficult for many organisations. We found that just over 40 per cent of trust finance directors were very or fairly concerned about achieving their planned CIPs this year.
While the overall state of their organisation’s finances is clearly a worry for many, other aspects of their organisation’s performance are also of concern. As the figure below shows, staff morale remains a top concern for trust finance directors, with delayed transfers of care, the four-hour waiting time target for A&E and, the emergency readmission threshold (which can attract financial penalties). CCG finance directors, on the other hand, remain primarily concerned about waiting time targets for A&E, elective and cancer care.
- Concerns about waiting times follow the worst year for breaches of the national 18-week target for admitted patients since it was introduced. The abolition of this and the target for non-admitted patients – leaving the targets for those still waiting and for diagnostics – may help trusts to focus on long waits and avoid the disincentives apparent with all three targets for elective treatment – but it also provides some respite for trusts as the percentage of patients still waiting remains below its target level. The continued increases in the total number of patients on the waiting list – at 3.4 million, its highest since 2008 – is worrying and will need to be addressed sooner rather than later.
- The four-hour target for A&E was missed in quarter 1 of 2015/16, the first time this has happened at the start of a year for more than a decade. The number of patients waiting more than four hours for admission to a bed from emergency departments – so-called ‘trolley waits’ – are 47 per cent higher in the first quarter of this year compared to last year.
With the only committed additional funding in real terms by 2020/21 being £8 billion, funding for the rest of this parliament will remain very tight in relation to the future demands on the service. The estimated remaining £22 billion funding-needs gap presents the NHS with the ongoing productivity challenge it has faced each year since 2010/11.
Looking beyond this financial year, nearly 9 out of 10 trusts, and nearly 7 out of 10 CCGs, finance directors say they are either uncertain or concerned about achieving financial balance in 2016/17.
The scale of the financial crisis that now extends to most NHS provider organisations poses a huge challenge that can only get more difficult given current funding commitments over the next five years. Overspending is clearly not sustainable, but the fact that it has become endemic is indicative of the equally unsustainable pressures caused by the continued squeeze on provider incomes.
To avoid eroding the quality of care for patients, in the short term at least, it now looks inevitable that for providers to regain financial control (and to allow the financial space to transform services in line with the Forward View) will require more funding than currently committed this year. How much this will need to be depends on how accurate current deficit forecasts are and how far those deficits can be offset by trusts’ savings programmes.
Although there is scope for the NHS to deliver increases in productivity and better value for patients – as set out in our recent review (Alderwick et al 2015) –- this will take time and will not deliver sufficient improvements soon enough to cover forecast deficits.
Alderwick H, Robertson R, Appleby J, Dunn P, Maguire D (2015). Better value in the NHS: the role of changes in clinical practice. London: The King’s Fund. Available at: www.kingsfund.org.uk (accessed on 9 July 2015).
Carter P (2015). Review of operational productivity in NHS providers. Interim report. Available at www.gov.uk (accessed on 9 July 2015).
Monitor (2015). ‘Bennett lays down billion pound challenge to NHS foundation trusts’. Press release, 3 July. Available at: www.gov.uk (accessed on 7 July 2015).
Monitor and NHS England (2015). ‘Most NHS providers opt for “Enhanced Tariff” for 2015/16’. Press release, 6 March. Available at: www.gov.uk (accessed on 6 July 2015).
NHS England (2015). Consolidated 2014/15 financial report (month 10). Paper PB.150326/13A for Board meeting, 26 March. Available at: www.england.nhs.uk (accessed on 10 July 2015).
NHS England (2014). The ‘forward view’ into action: planning for 2015/16. Available at: www.england.nhs.uk (accessed on 10 July 2015)
NHS Trust Development Authority (2015). Paper D: NHS Trust Service and Financial Performance Report for the period ending 31 March 2015. Board meeting, 21 May. Available at: www.ntda.nhs.uk (accessed on 10 July 2015)
Wintour P, Campbell D (2015). ‘Ed Miliband warns that NHS faces financial bombshell’. News story, 5 May. Available at: www.theguardian.com (accessed on 6 July 2015).