Headlines

  • While the deficit incurred by the provider sector in 2015/16 may be offset by underspending elsewhere across the NHS, the legacy of this deficit will dominate the new financial year. Our latest survey shows that, even after huge pressure to reduce overspending, 67 per cent of providers ended 2015/16 in deficit, including 86 per cent of acute trusts. Despite the financial rescue package (that will absorb around one-third of the total cash increase for NHS England this year) finance directors remain very pessimistic about the financial position for 2016/17.

How did the NHS perform in 2015/16?

  • February’s QMR suggested the net provider deficit for 2015/16 would be around £2.3 billion. Monitor and the NHS Trust Development Authority’s third quarter forecasts confirmed this, but added that the outturn depended on nearly £0.5 billion of savings in the last quarter (Figure 1) (Monitor and NHS Trust Development Authority 2016). If there is a silver lining to the provider-side deficit it is that this extra spending – equivalent to nearly double the cash increase for the whole of the NHS in 2015/16 – has been spent on things that benefit patients. Nevertheless, as NHS England reported in March (NHS England 2016a), the NHS failed on more than half of its key targets in January (Table 1).
Figure 1: NHS provider organisations financial position: 2009/10 to 2015/16

Data source: Department of Health Annual Accounts; Monitor 2016

Table 1: NHS performance on key standards, January 2016

Service Standard Target Actual
Mental health Patients on Care Programme Approach followed up within 7 days 95% 96.9%
IAPT access rate 15% 16.5%
IAPT recovery rate 50% 45.6%
Dementia diagnosis rate 66.6% 67.2%
Cancer Two-week wait cancer referral 93% 93.6%
Two-week wait breast cancer referral 93% 92.4%
31-day wait diagnosis-to-treatment for all cancers 96% 96.9%
31-day wait for subsequent surgery treatment 94% 94.5%
31-day wait for subsequent drug regimen
 98% 98.5%
31-day wait for subsequent radiotherapy treatment 94% 96.0%
62-day wait from screening referral to treatment 90% 92.6%
62-day wait from GP referral to treatment 85% 81.0%
Elective Patients still waiting <18 weeks 92% 92.0%
Patients waiting >52 weeks 0 727
Patients waiting <6 weeks for diagnostic test 99% 97.9%
Emergency Patients waiting <4 hours in A&E 95% 87.9%
Category A calls (Red 1) 75% 69.9%
Category A calls (Red 2) 75% 63.3%
Category A calls within 19 mins 95% 91.1%
Other Mixed-sex accommodation breaches 0 563
Cancelled operations not rescheduled in 28 days 0% 6.0%
Source: NHS England 2016a

And in the view of trust and CCG finance directors, looking back over the past 12 months, a majority felt that in terms of patient care the NHS in their local area had got worse. In fact, nearly two-thirds of trust finance directors and more than half of CCG finance directors felt care had got worse (Figure 2).

NHS TrustsCCG Leads
Figure 2: Has patient care in your area got better, worse or stayed the same over the past 12 months? Proportion reporting ‘worse’

Question asked: Thinking about the NHS in your local area, in the past 12 months, do you think it has got better, worse, or stayed the same in terms of patient care? NB: Question not asked of CCGs in January and April 2013 surveys.

Overall, 2015/16 has turned out to be a watershed year. Deteriorating finances among providers and comparatively poor performance on headline measures provide an extremely difficult starting position for the new financial year.

Financial prospects for 2016/17

The challenge for the National Health Service in the coming year [2016/17] is to raise performance in those areas most visibly under pressure – including A&E, waits for operations, and management of hospital finances. But at the same time we need real progress on critical but long neglected services, including strengthening GP care, mental health, and prevention. In an era of historically constrained budgets, how do we square the circle?
Simon Stevens (NHS England 2016b)

  • Our latest survey of finance directors, carried out in the first few weeks of the new financial year, shows that more than half of all providers forecast a deficit for 2016/17 (including 69 per cent of acute trusts). However, the size of the net deficit across all providers (scaling up from the survey results) suggests an overspend of around £1.4 billion – a reduction of around £1 billion on the 2015/16 outturn. This is despite the national plan to eradicate deficits through the channelling £1.8 billion to trusts via the Sustainability and Transformation Fund and is after most trusts plan to take action to support their end-of-year forecast through other measures – depleting reserves, releasing resources from their organisation’s balance sheet, delaying or cancelling capital spending or bolstering their position in the short term through loans and other financial support from the Department of Health (such as the Sustainability and Transformation Fund). Forecasts also take account of anticipated savings through providers’ cost improvement programmes (CIPs). However, a considerable number of providers – 38 per cent – are uncertain about achieving their CIPs, while a similar proportion are very or quite concerned.

  • As part of the national strategy to eradicate deficits, financial outturn plans (control totals) have been set for providers this year. It is fair to say that in many cases this has been a fraught process that for around 44 per cent of trusts currently remains unresolved, with negotiations over the size of the target deficits/surpluses still taking place (or in some cases, rejected by trusts, which as a result forego extra funds via the Sustainability and Transformation Fund). There also remains huge uncertainty and concern among those who have control totals about whether these can be met; 73 per cent of trusts are either concerned or uncertain about whether they can stay within the terms of their financial controls.

  • On the commissioning side, just over 19 per cent of CCG finance leads forecast a deficit by the end of 2016/17. However, many noted that there was uncertainty and risks with their forecasts and that the requirement to hold 1 per cent of their allocations completely uncommitted couldn’t be guaranteed. There has also been a considerable increase in pessimism among CCG finance leads as to the achievability of their savings plans (QIPP). More than 67 per cent are very or fairly concerned about meeting their savings targets – by far the largest proportion since our survey began in 2012/13.

  • Of course, commissioners, providers, local authorities and others involved in health and social care are all ‘in it together’ in delivering services. One organisation’s deficit may be seen as another’s surplus, and no part of a local health economy stands alone. But the pessimism about the financial state of local health and care economies over the next 12 months is overwhelming: 95 per cent of trust finance directors and 87 per cent of CCG finance leads are pessimistic.

  • Financial issues are bound to dominate the agenda for all NHS organisations. But there are others issues of concern too. Asked to identify their top three current concerns, trust finance directors list delayed transfers of care, the four-hour waiting time target in A&E and staff morale (Figure 3). For CCG finance leads, waiting times in A&E remain a top concern (as they were for trust finance directors when they were surveyed in January this year).

NHS TrustsCCG Leads
Figure 3: Which aspects of your organisation's performance are giving you most cause for concern at the moment? (NHS trust finance directors and CCG finance leads)

  • However, concerns about access are mirrored in published performance measures. As trends presented in the section on NHS performance data show, on five main waiting times measures, average performance across the whole of 2015/16 has been poor:

    • elective waits >18 weeks: worst performance since 2011
    • total elective waiting list: now at 3.7 million – the longest since 2007
    • diagnostic waits >6 weeks: target missed for past 28 months
    • A&E waits >4 hours: worst performance since 2003
    • cancer waits >62 days: worst performance since 2008.

  • If being admitted to hospital has become more difficult, so too has being discharged. Delayed transfers of care remain at a historical high, and 2015/16 looks to be the most difficult year since 2007/8.

  • Overall, it is hard to overstate how difficult 2016/17 will be given the ambition to eradicate overspends (on the basis of our latest survey, unlikely) while not only improving performance on headline acute care standards, but also tackling pressures in primary care and mental health services.

Beyond 2016/17

  • The central problem – not just this year, but also over the next five years – is the extension of austerity beyond the timespan envisaged in 2010, leaving the NHS in the middle of an unprecedented decade-long squeeze on funding. New economic assumptions from NHS Improvement suggest that NHS-specific inflation this year and up to 2020/21 will be higher than the general measure usually used to calculate real-terms spending changes (the GDP deflator). Using the NHS-specific measure of inflation reduces the increase for the NHS overall this year from £1.8 billion, to close to zero (Figure 4). Subsequent years to 2020/21 show much-reduced real increases too. Overall, by 2020/21, the real increase in NHS funding could be just £1.1 billion – an average of around 0.2 per cent per year.
Figure 4: Real changes in NHS funding to 2020/21: general and NHS-specific inflation deflators

Data source: The King’s Fund estimates based on HM Treasury 2015; NHS Improvement 2016

  • It is of course the NHS’s own experience of inflation that reflects the reality of service cost pressures. Extra cost pressures this year and next all but wipe out the front-loading of the Spending Review settlement and underline the seriousness of the general financial situation. It is unsurprising then that when asked about achieving financial balance in 2017/18, 64 per cent of trust finance directors say they are very or fairly concerned. Commissioners are also increasingly feeling the financial pressure; 55 per cent say they are concerned about their financial situation in 2017/18. Caution and pessimism even in the best of times may be part of the finance director’s job description, but these views about the future are not encouraging.

References