How is the NHS performing?
Halfway through the new financial year and our latest survey of finance directors provides an even gloomier picture of the financial and service performance of the NHS than our June poll.
With predictions that the Department of Health may break its spending limit this year, providers have been under enormous pressure to recover projected overspends. However, as the NHS Trust Development Authority and Monitor report, net overspending in the first quarter of this year amounted to £930 million, with 82 per cent of all NHS provider organisations overspent (NHS Trust Development Authority 2015, Monitor 2015). On this basis, the overspend at the end of the year could well exceed £2 billion – more than twice the overspend for last year. The NHS is now entering seriously dangerous financial territory which will have ramifications for patients and for all levels of NHS management.
- Our latest survey of finance directors shows that 64 per cent expect to overspend by the end of this year – including 88 per cent of acute trusts. Although this is a slightly better picture of the number of organisations forecasting a deficit compared to Monitor and the NHS Trust Development Authority’s first quarter figures, overspending on this scale is a symptom of more systemic problems – not least a service struggling to meet patient demands with inadequate funding to do so.
The national funding context
Although the NHS received some additional funding this year over and above that planned, as we noted in QMR16 the entire cash increase of around £3.3 billion will be wholly absorbed by the Better Care Fund. The Better Care Fund could improve care for patients, but finance directors remain somewhat sceptical of the impact it will have this year. More than 80 per cent of trust finance directors felt fairly or very concerned about achieving the planned reductions in emergency activity agreed in their Better Care Fund plans, and 66 per cent of CCGs are either fairly or very concerned about being able to deliver their planned Better Care Fund savings this year.
Concern about the Better Care Fund is reinforced by the fact that nearly 90 per cent of trust finance directors think that financial pressures on local authorities are adversely affecting health care services in their local area. Indeed, this pressure is evident from the number of delayed transfers of care attributable to social care; these increased by more than 21 per cent over the 12 months to August 2015/16.
For the rest of the parliament, the government’s pledge of a real increase of £8 billion by 2020/21 represents an average annual real increase of just 1.3 per cent compared to a real increase of 1.9 per cent this year. Next month’s Spending Review will set out how this total will be reached over the next four years. Whatever the decision, the total increase leaves little room for manoeuvre.
Financial prospects for 2015/16
- As the figure below shows, the proportion of trusts forecasting a deficit at the end of this year is similar to the proportion in the June survey for this year – representing the worst end-of-year forecast since our surveys started.
QMR 1-4 based on a panel of 50 finance directors.
The continued downward pressure on prices and income leaves providers with the bulk of the financial risk in most health economies. However, while only 18 per cent of CCGs forecast an overspend this year, this is nearly twice the proportion reporting possible deficits in our June survey (and very similar to the proportion reported by NHS England (2015) to be in deficit by month 4).
Moreover, with around 70 per cent of providers in our survey reporting that their end-of-year forecast includes the use of reserves, it is clear that tactics to contain spending are not sustainable.
Continuing demand pressures are evident from increasing trends in hospital activity – from referrals to outpatient and A&E attendances as well as elective and, to a lesser extent, emergency admissions (see figure below). While more work can mean more income for providers, year-on-year real reductions in the tariff have attenuated income growth.
Data source: Monthly hospital activity data, provider based www.england.nhs.uk
The cost of providing services remains a crucial issue. In particular, rising staffing costs continue to be one of the main drivers behind increases in deficits. Agency costs continue to increase as trusts struggle to fill nursing and other clinical posts. The restrictions and caps on agency spending will come into force this month, and the Department of Health suggests the new controls will save the equivalent of around £0.3 billion a year over the next three years (Department of Health 2015). But it remains to be seen whether this will be achieved – and certainly savings this year, if they materialise at all, will be somewhat smaller.
Moreover, as our survey indicates, for around 27 per cent of finance directors, the squeeze on agency costs could hamper their organisations’ ability to guarantee safe levels of staffing – just as the NHS enters the winter period with its highest demand for staff.
Making ends meet through cost improvement programmes also remains very difficult; 55 per cent of trust finance directors are either fairly or very concerned about meeting their CIP targets this year – one of the highest proportions since our survey began in 2011. This also chimes with deep scepticism about the possibility of the NHS as a whole meeting the challenge to generate £22 billion in productivity gains by 2020/21: 84 per cent of finance directors think there is a high or very high risk of failure to achieve this goal.
While it is clear that the state of finances is deeply concerning to most finance directors, other aspects of their organisation’s performance are also of concern to them. As the figure below shows, staff morale remains a serious concern, along with delayed transfers of care. However, concern is increasing about senior clinicians’ level of engagement with performance issues and about cancer waiting time targets – reflecting continuing poor performance on this target. CCG finance directors, on the other hand, remain primarily concerned about waiting times targets for A&E, elective and cancer care.
- The dropping of two elective waiting times targets – but continuation of the targets for those still waiting and for diagnostic tests – may make sense to avoid potential disincentives to treat long waits, but finance directors see neither benefits to patients nor to their trusts from these changes. Meanwhile, the total number on waiting lists continues to rise and now, at nearly 3.5 million, is at its highest for more than seven years (see figure below).
Data source: Referral-to-treatment waiting times statistics www.england.nhs.uk
The four-hour target for A&E remains a challenge for the NHS. Now measured on a monthly rather than weekly basis, the target has been met across the NHS only once in the past 12 months. And the number of patients waiting more than four hours for admission to a bed from emergency departments – so-called ‘trolley waits’ – at around 20,000 for August are 25 per cent higher than for this month in the past four years. This does not augur well for winter and early spring, when demand pressures will mount.
So, while the NHS has overspent by £930 million in the first quarter of this year, key performance targets remain under pressure. If trusts had not overspent, performance would undoubtedly have been worse. For the remainder of this year, finance directors are very pessimistic. Around 95 per cent (and 90 per cent of CCG finance leads) are either fairly or very pessimistic about the finances in their local health economies over the next year – the most dismal view we have recorded since our survey began.
Looking beyond this financial year, nearly 90 per cent of trust and more than 80 per cent of CCG finance directors say they are either uncertain or concerned about achieving financial balance in 2016/17.
While 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. Moreover, the vast majority of trust finance directors and CCG finance leads remain sceptical that the NHS will be able to generate the £22 billion productivity improvements outlined by the NHS five year forward view.
The immediate and pressing concern is the state of the NHS’s finances now, and into next year. The figures for the first quarter reported by the NHS Trust Development Authority and Monitor underline the growing concerns that finance directors have been expressing in our quarterly reports for more than a year. While NHS organisations will undoubtedly try to recover their financial position as much as possible, the strong likelihood is that the Department of Health will end up breaking its expenditure limit this year as it will be unable to offset the growing provider deficit.
As our submission to next month’s Spending Review made clear (The King’s Fund 2015), it now seems unavoidable that emergency funding will be needed sooner rather than later and that front-loading the promised additional £8 billion by 2020/21 is necessary. It seems increasingly unlikely, however, that this will prove sufficient.
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 14 October 2015)
Department of Health (2015). ‘Clampdown on NHS staffing agency costs.’ Available at: www.gov.uk (accessed on 14 October 2015)
Monitor (2015). Performance of the foundation trust sector: 3 months ended 30 June 2015. Available at: www.gov.uk (accessed on 14 October 2015)
NHS England (2015). ‘Consolidated month 4, 2015/16 financial report’. Board papers, 24 September, item 8. Available at: www.england.nhs.uk (accessed on 14 October 2015)
NHS Trust Development Authority (2015). ‘NHS trusts – financial position for Q1 of 2015/16’. Available at: www.ntda.nhs.uk (accessed on 14 October 2015)
The King’s Fund (2015). Health and social care funding: the short, medium and long-term outlook. Written submission to the Spending Review 2015. Available at: www.kingsfund.org.uk (accessed on 14 October 2015)