The King’s Fund published its first quarterly monitoring report (QMR) in April 2011 as part of its work to track, analyse and comment on the changes and challenges the health and care system is facing. This is the 21st report and aims to take stock of what has happened over the past quarter and to assess the state of the health and care system. It provides an update on how the NHS is coping as it continues to grapple with productivity and reform challenges under continued financial pressure. For the first time we have included general practice in the report.
The QMR combines publicly available data on selected NHS performance measures with views from NHS finance directors and clinical commissioning group (CCG) finance leads. For the first time the report includes views from general practitioners and practice managers, and unpublished activity data.
See the box below for further details of our methodology.
Survey of NHS trust finance directors and CCG finance leads
This report details the results of an online survey of NHS trust finance directors carried out between 5 and 24 October 2016. We contacted 254 NHS trust finance directors to take part, and 72 responded (28 per cent response rate). The sample included 35 acute trusts; 26 community and mental health trusts; 2 specialist trusts; and 9 unknown.
In addition, we made contact with 168 clinical commissioning group (CCG) finance leads, and 39 responded (23 per cent response rate). Between them these finance leads covered 48 CCGs (23 per cent of all 211 CCGs).
General practice monitoring
For the first time, this report includes results from our monitoring of general practice. This is based on data from a sample of 202 practices (around 2.5 per cent of all practices in England) held by ResearchOne, a database created using records from TPP’s SystmOne, one of the main clinical information systems used in general practice in England. Using this data, we have compared activity in the first two quarters of 2016/17 with the same period in 2014/15. We also conducted a small online survey of GP partners and practice managers in England that received 129 responses (which may include multiple responses from a single practice). This provides a snapshot of opinion in the GP community.
The new approach to NHS finances in 2016/17
After the £2.45 billion overspend by NHS providers in 2015/16, NHS Improvement and the other national NHS bodies have introduced a new approach to managing NHS finances. This approach has a number of key elements.
The Sustainability and Transformation Fund
Additional funding of £1.8 billion has been placed in the new Sustainability and Transformation Fund and is being allocated to trusts to help them manage deficits. This money will be paid out to NHS providers (overwhelmingly to acute providers), but only where they meet a set of finance and performance targets. Sustainability and Transformation Fund payments reduce an organisation’s reported deficit. It was hoped that the £1.8 billion Sustainability and Transformation Fund would be sufficient to return the NHS provider sector as a whole to net balance. But this looks unlikely; indeed by July NHS Improvement was aiming to cut the combined provider deficit to around £250 million.
Control totals are the financial targets for each organisation – they set the maximum deficit (or minimum surplus) an organisation is allowed to run. Each organisation has its own control total, which is agreed with NHS Improvement depending on its financial strength. At the end of the first quarter, 24 NHS providers had not agreed control totals. Once Sustainability and Transformation Fund payments are included, the combined control totals for all trusts were initially intended to return the provider sector to net balance.
Meeting finance and performance targets
If providers fail to meet the finance and performance requirements that underpin their control totals, access to all or some of their planned payments from the Sustainability and Transformation Fund can be withheld. In the first quarter of 2016/17, 29 providers failed to meet these requirements and had their funding withheld. While this will increase deficits reported by individual providers, it will not alter the net provider position as the Sustainability and Transformation Fund will be underspent by the equivalent amount and NHS Improvement counts this underspend against providers as a whole. This means reported provider overspends will overstate the overall provider deficit as NHS Improvement will have some offsetting, unspent Sustainability and Transformation Fund money. If a provider cannot pay its bills – such as salaries for its staff – without Sustainability and Transformation Fund support it may need to turn instead to the Department of Health for additional cash support usually provided as a loan.
In 2016/17 NHS commissioners have set aside 1 per cent of their total allocations to offset risks to overall financial balance in the NHS. This creates an £800 million central reserve to set against potential overspends. If this is not needed, this funding will be released for investment in local priorities.
Latest forecasts from NHS Improvement and NHS England
Without further action, at the end of the first quarter, NHS Improvement forecast a full-year net provider deficit of £644 million for 2016/17 but by July was aiming to reduce this to a net £250 million deficit. This includes the unspent Sustainability and Transformation Fund money still sitting with NHS Improvement. For commissioners, NHS England reported that CCGs had overspent by £158.7 million, but were forecasting to reduce this to a net £87.9 million overspend by the end of the year. Against this, NHS England expects to underspend its own budgets and retains its 1 per cent reserve (£800 million).
Financial prospects for 2016/17
2016/17 was meant to be the year the NHS turned round its performance after an exceptionally difficult 2015/16, thereby laying the foundation for the transformation of services set out in the NHS five year forward view (Forward View). However, the evidence from our latest survey of NHS trust finance directors suggests the chances of reaching this goal continue to fade. In addition, we present the first results from our monitoring of general practice. This underlines the depth of stress felt in primary care, setting a difficult starting point for the measures set out in the General practice forward view (GP Forward View), which aim to stabilise and transform general practice.
In our previous survey, while only 13 per cent of providers estimated that they would miss their control totals, many also expressed concerns for the rest of the year. This created a risk that provider performance in the early part of the year might be difficult to sustain, possibly reflecting the upfront efforts providers had made to secure their sustainability and transformation funding in the first quarter. Some of this risk appears to be materialising. The number of trusts forecasting that they will fail to hit their control totals has risen to nearly a third. This suggests that NHS Improvement’s aim of reducing the overall deficit to £250 million for this year is already out of reach. With 47 per cent of trusts overall still fairly or very concerned about meeting their control totals by the end of the financial year and more than half concerned about whether they will be able to meet their cost improvement targets, there is a risk that the end-of-year deficit will worsen further and exceed the £644 million forecast at quarter one (Figure 1).
Any provider deficit was meant to be offset by commissioning organisations’ 1 per cent reserve. While just under two-thirds of CCGs now forecast a surplus for the year, more than 20 per cent of CCGs are relying on the release of their reserve to achieve that, suggesting that not all of the £800 million will be available to offset provider overspends. Combined with a rising provider deficit this will increase the risk to the Department of Health’s overall financial position. In addition, more than 70 per cent of CCGs are now fairly or very concerned about achieving the savings plans put in place to create this reserve, suggesting a risk of further deterioration.
Meanwhile in general practice, our new activity-tracker shows a 9.9 per cent increase in total consultations (including telephone consultations) over the two years up to quarter two 2016/17. This is confirmed by the snapshot of opinion among GPs responding to our survey.
How is the NHS performing?
Despite the introduction of the Sustainability and Transformation Fund, the financial reset and the use of a new financial `special measures’ regime, financial performance in providers continues to slide. As a result, reducing the net provider deficit to £250 million from the forecast £644 million at quarter one looks increasingly unlikely and indeed, there are greater risks it will rise rather than fall. This is despite a quarter of all trusts now reporting delays or cancellations of capital spending in order to support their finances.
Increasing numbers of trusts are also looking to reduce their clinical workforce, with 29 per cent now planning to reduce their headcount. While relatively few acute hospitals plan to reduce the number of staff, more than half of mental health and community health service providers are now planning to do so. This threatens the aspirations to raise the quality of care set out in the Five year forward view for mental health as well as long-term goals to improve services in community settings. Alongside cuts to capital spending by trusts, more than half of CCGs are delaying or cancelling spending plans. This underlines the risks that the drive to cut deficits is having on the long-term transformation agenda for the NHS.
- The latest September performance data for the NHS shows an alarming increase in the hospital days lost to delayed transfers of care, with the numbers growing by nearly a third over the year. Performance against the 18-week referral-to-treatment and the four-hour A&E standards also continues to slide, but, for most providers, was supposed to recover by the end of the financial year. However, 73 per cent of NHS organisations for whom these targets are relevant are fairly or very concerned that this will not happen. This pessimism is perhaps easy to understand: for referral-to-treatment while the increase in first outpatient appointments is keeping pace with rising GP referrals to hospital (at around 3 per cent growth over the past year), the number of admissions is lagging well behind and the number of people on the waiting list has risen by 400,000 since August 2015 (Figure 2). Within the current financial environment it will be difficult for hospitals to reverse this trend by sharply increasing the number of admissions as this would risk raising deficits even further.
- Our report, Understanding pressures in general practice, set out the current challenges facing general practice. While NHS England’s GP Forward View has outlined a range of measures to stabilise and transform general practice, the absence of routine performance and activity data in primary care makes it difficult to monitor progress. Our new six-monthly monitoring of general practice underlines the difficulties facing the sector as it strives to meet rising demand while struggling to recruit the clinical staff it needs. The activity data reveals that the number of face-to-face appointments is up by 6.1 per cent over the past two years and consultations have risen by 9.9 per cent in total (when other consultations, such as those by telephone, are included). The snapshot of opinion provided by our survey suggests high levels of pessimism about the ability to recruit and retain clinical staff.
Over most of the past year, the NHS and its partners have been engaged in a new approach to planning designed to stabilise finances and deliver service transformation until 2020/21. Each of 44 geographical areas across England submitted its five-year sustainability and transformation plan (STP) to the national NHS bodies on 21 October, and a number of STPs have been put into the public domain, mainly by local authorities. In addition to this process, on 22 September the national NHS bodies published more detailed operational planning guidance for 2017/18 to 2018/19. In the light of all this activity, have NHS trust finance directors become more optimistic about the future? Our survey suggests if anything, views have hardened since our last survey. While the proportion of trust finance directors who remain fairly or very concerned that their organisation will achieve financial balance in 2017/18 is stable at 62 per cent, that includes 50 per cent who are ‘very concerned’, up from 36 per cent in September. In addition, the proportion of trust finance directors who are fairly or very pessimistic about the financial state of their wider health economy over the next 12 months has now reached a new high of 96 per cent, and 90 per cent of CCG finance leads agree with them.
Looking forward to 2020/21, the STP process has not led to any greater optimism about the prospects for achieving the £22 billion in efficiency savings needed to deliver the Forward View. While some 79 per cent of trust finance directors think there is a high or very high risk of failure, now 90 per cent of CCG finance directors say the same, sharply more pessimistic than in July before STP plans were submitted or the planning guidance issued.
With many organisations still expecting to end this year in deficit, no additional transformation funding available, and minimal real-terms growth in 2017/18 and 2018/19, NHS finance directors have found little to be optimistic about.