This quarter’s report is based on an online survey of 80 NHS trust finance directors and 42 clinical commissioning group (CCG) finance leads (covering 51 CCGs).

Respondents were asked about their organisation’s financial situation and the financial outlook for their local health economy over the past and forthcoming financial year; the state of patient care in their area; the financial situation looking ahead to 2017/18; the key organisational challenges facing trusts and CCGs; and workforce issues. We also asked trusts about the actions they had taken to manage any winter pressures and what they felt was leading to any pressures felt in accident and emergency (A&E) departments.

• In our recent survey just under half of all trusts (46 per cent) forecast ending 2016/17 in deficit (Figure 3). More than 70 per cent of trust finance directors reported that their forecast position for 2016/17 would depend on significant financial support (Figure 5). Furthermore, 55 per cent of providers expecting to receive Sustainability and Transformation Fund monies still forecast a deficit by the end of the year.

• The total net deficit forecast for the end of 2016/17 for the 80 provider organisations surveyed amounts to £542 million. For acute providers the net deficit is £453 million. For organisations that have refused to agree control totals, or that have had Sustainability and Transformation Fund payments withheld, these deficits will be partially offset by unspent payments held by NHS Improvement.

• We also asked trusts to provide details of their agreed control totals for 2016/17. Of the 74 trusts that have agreed control totals (or that are in the process of agreeing control totals), 31 per cent forecast a worse end-of-year position against their control total. Furthermore, 34 per cent of trusts are either fairly or very concerned about meeting their agreed control totals in 2016/17 (Figure 7). Perhaps more alarming at this late stage of the year, 17 per cent of trusts are still forecasting that they will hit their control total but also remain fairly or very concerned that they may ultimately fail.

• More than half (57 per cent) of all CCGs forecast a surplus for 2016/17, and 25 per cent are expecting to overspend, up from 10 per cent last quarter (Figure 4). Forty per cent of CCGs have had to delay or cancel spending plans to support their finances (Figure 6). The potential threat to the £800 million central risk reserve is underlined by the fact that 18 per cent of CCGs are relying on their share being returned to them, rather than being used to support provider deficits.

• The average cost improvement programme (CIP) target for trusts for 2016/17 is 4.1 per cent, ranging from 1 per cent to 9 per cent of turnover (Figure 8).

• The average quality, innovation, productivity and prevention (QIPP) target for CCGs for 2016/17 is 3.3 per cent, ranging from 0.9 per cent to 7.1 per cent of allocation (Figure 8).

• More than a third (37 per cent) of all NHS trust finance directors are either fairly or very concerned about achieving their savings plans this year (Figure 9). This represents a lower level of concern than that reported at the same time in 2015/16 or 2014/15.

• Nearly two-thirds (59 per cent) of all CCG finance leads are fairly or very concerned about achieving their plans this year (Figure 10). High levels of concern among CCGs reflect the higher efficiency savings that were built into 2016/17 plans. These higher savings were necessary to generate the £800 million central risk reserve among NHS commissioners.

• Just under two-thirds of trust finance directors (63 per cent) feel that patient care has worsened in their local area in the past year (Figure 11).

• For CCGs, more than half (56 per cent) of all CCG finance leads feel that patient care has worsened in their local area in the past year (Figure 12).

• The number of trust finance directors and CCG finance leads reporting that patient care has worsened in their local area in the past year has remained consistently high throughout 2016/17, when compared to earlier years.

• For trust finance directors, delayed transfers of care continues to be their main concern. As in the previous QMR, staff morale is their second highest concern. Bed occupancy is now the third major concern for trust finance directors. Since 2013 A&E has been one of the top three concerns in every QMR but one, and its disappearance from the top three now may suggest that finance directors are increasingly concerned about the underlying drivers of poor performance rather than the standard itself (Figure 13).

• For CCG finance leads the four-hour A&E waiting time standard continues to be their main concern for a second time in a row, followed by the 18-week referral-to-treatment standard. They also continue to be concerned about delayed transfers of care and the cancer treatment waiting times standards (Figure 14).

• As providers continue to operate within an extremely challenging financial situation, a number of measures are available to them to improve their financial position. As clinical staff account for a high proportion of overall NHS costs, one of the most direct ways to make savings is to reduce the number of clinical staff employed. Alongside potential changes to permanent clinical headcount, the NHS has also been engaged in a major effort to reduce spending on agency staff, with some success (NHS Improvement 2017). NHS providers now forecast a £771 million reduction in spending on agency staff in 2016/17 compared to 2015/16, after three years in which spending had risen at 25 per cent per annum.

• Seventy-four per cent of trusts plan to reduce their use of clinical agency staff in 2016/17, and 29 per cent plan to reduce permanent clinical headcount (Figure 15). Twenty-five per cent of trusts plan to reduce both use of clinical agency staff and permanent clinical headcount. As in recent QMRs, the percentage of mental health and community health services trusts saying they plan to reduce headcount (36 per cent) is higher than the proportion of acute trusts planning to reduce headcount (21 per cent).

• As a condition of receiving sustainability and transformation funding, trusts are expected to develop credible plans for maintaining delivery of core standards for patients, including the four-hour A&E waiting time and the 18-week referral-to-treatment standards.

• We asked trust finance directors how confident they were in their organisation’s ability to deliver on these standards by the end of 2016/17. Worryingly, three-quarters (75 per cent) are either fairly or very concerned that their organisation will not be able to deliver these operational standards by the end of 2016/17 (Figure 16). Since the last QMR, the proportion who are very concerned that their organisation will not meet these standards has risen from under half to nearly two-thirds, underlining the rise in pessimism over winter. Despite this, as noted above, neither A&E waiting times nor 18-week waiting times are within the top three organisational concerns for trust finance directors.

• Previous surveys have revealed a high degree of scepticism about the achievability of the productivity challenge as set out by the Forward View.

• This survey shows that 74 per cent of trust finance directors and 84 per cent of CCG finance leads think there is a high or very high risk of failing to achieve the productivity gains suggested by the Forward View (Figures 17 and 18).

• In order to manage the seasonal increase in demand seen over winter, 75 per cent of trusts in our survey increased the number of staff available, 73 per cent opened additional beds, and 55 per cent suspended/cancelled elective activity in order to free up capacity (Figure 19). Turning to CCGs, 81 per cent invested in additional primary care capacity and 78 per cent of CCGs have also invested in additional capacity in the community (Figure 20). These responses underline just how widespread the contingency planning for winter was, across both trusts and CCGs.

• When asked what was having the most impact on A&E pressures, 80 per cent of trust finance directors say higher levels of patients with more complex conditions or who were more acutely ill, 70 per cent say delayed transfers of care and 61 per cent point to rising demand (Figure 21). This indicates a high degree of agreement among finance directors over the underlying cause of rising waiting times in A&E and the associated winter pressures on the NHS. Significantly fewer finance directors point to either access to general practice or a shortage of clinical staff in A&E as key factors.

• When asked for their views about the financial state of their wider local health and care economy over the next 12 months, 96 per cent of trust finance directors and 81 per cent CCG finance leads are fairly or very pessimistic (Figures 22 and 23).

• More than half (59 per cent) of NHS trust finance directors are very or fairly pessimistic about balancing their books in 2017/18 (Figure 24).

• Just under two-thirds (61 per cent) of CCG finance leads are very or fairly pessimistic about achieving financial balance in 2017/18 (Figure 25).

References

• NHS England (2017). Item 8: Consolidated month 9 2016/17 financial report. NHS England website. Available at: www.england.nhs.uk/2017/02/board-meet-6-february-2017 (accessed on 22 February 2017).

• NHS Improvement (2017). Quarterly performance of the NHS provider sector: quarter 3 2016/17. NHS Improvement website. Available at: improvement.nhs.uk/resources/quarterly-performance-nhs-provider-sector-quarter-3-1617 (accessed on 22 February 2017).

• Public Health England (2017a). ‘Norovirus and rotavirus: summary of surveillance 2017’. GOV.UK website. Available at: www.gov.uk/government/statistics/norovirus-national-update (accessed on 22 February 2017).

• Public Health England (2017b). ‘Weekly national flu reports’. GOV.UK website. Available at: www.gov.uk/government/statistics/weekly-national-flu-reports (accessed on 22 February 2017).

STPs have attracted a lot of attention. How have they worked for your organisation and area?

We are engaged well in the STP and in the circumstances it’s gone quite well. It’s making people talk together, which is good, but the reality is, for us certainly, that we need to be pragmatic about how to go about creating a plan. We needed solid plans for different parts of our geography and then we need to see what synergies there are in joining those plans together. To go from nothing to a single integrated STP in our area is clearly not achievable.

When we modelled the growth in activity and revenue through to 2021, we ended up with a [financial] gap. So the way we viewed this gap is: this is not about taking cash out of the system or just reducing cost. What we have to do is be more productive and cover the increased activity with the same amount of money. The issue for us – and I think for many areas – is that the revenue increases pretty much cover the inflation assumptions. After that what you have to do is absorb all the activity growth within the same real-terms resource and so it’s all about productivity. If you take that view it focuses the mind on what needs to be done and not just cost reduction. So what we have to look at is how we treat x per cent more patients in the urgent care pathway and you have to re-design the urgent care pathway. This is quite constructive but will take a bit of time to actually bear fruit.

Has the STP given priority to mental health and community services?

Directionally, yes. But what we have to avoid is this strategic winner thing. If you think in terms of organisational entities there will be natural barriers to doing anything. You have to look at it as a complete patient flow. So it’s all about the patient: how are they going to be better treated and are we going to treat all of those patients and are we going to re-arrange the resources that we have to be able to meet the demand?

Typically, what it does mean is that you have to get people in and out of the acute side of things more quickly and obviously avoid [people] going in if you can, which means you need to do certain things elsewhere. I don’t think community services need to increase. Community just has to be a lot more efficient and slicker and then it does come down to primary care; ultimately it must do more. There are difficulties with that because there’s a shortage of GPs. So on paper it can look good but actually delivering it is going to be difficult. But I think that is true across the country.

Has the Mental Health Taskforce and its implementation led to more money for mental health?

This year we probably got the right growth from one CCG but from the other we didn’t.

Was more money on offer in the 2017/18 and 2018/19 contracting round?

No. Nobody offers you anything – you have to fight for it. The fact is that for commissioners, their priority when they are negotiating contracts and tidying up risk is always the acute sector because PbR [payment by results] is activity based. So their goal is to sort out the acutes before coming to our block contract.

On parity of esteem, this needs to be watched. It’s quite remarkable that we don’t have, ready to hand, statistics by CCG on spending per head of population on mental health and this would really help get to grips on what’s happening in mental health and we need this transparency.

What has your experience been with agency controls?

Well the agency controls are quite helpful. The fact that there is some consistency across the patch with them, that’s quite useful. We’ve put in place all the things you need to do, with e-rostering, tight controls, generating your own bank and these sort of things.

Implementation has been pretty good. All of this has been done and this is helpful as it’s held a lid on the prices. But is hasn’t actually changed our need to use agency [staff] because we can’t recruit readily. For us as a trust one of our biggest concerns is recruitment: being able to recruit the skills we need.

What gives you optimism for the future?

A couple of things. I think the collaborative discussions that the STP process has established is a good start in trying to break down the barriers of traditional organisational protection and actually trying to look at the patient and trying to get the best for them is really good and important and should continue.

There is a lot of potential in technology. The question is how to harness it and use it effectively to support implementation. If you track the patient meticulously from when someone first feels an ache or pain, you should be able to work out which technology will help support them getting the right help at the right time.

What are your biggest challenges?

Number one is the level of demand that we are experiencing within the acute sector at the moment. Our staff do an amazing job every day but the system is very stretched at the moment and it’s stretched to the point that it is becoming incredibly inefficient because of the levels of occupancy that we are running at.

The second thing, which is perhaps more specific to us, is the state of our estate. We really do need a sustainable solution to rebuild our infrastructure which is very inefficient, keeps breaking down and is past the end of its useful life.

What is driving the increase in demand?

I’ve not seen any specific analysis that’s been done to get to the root cause, but I think none of us are terribly surprised by the rising demand. We’ve all known about the ageing baby boomers and the rising numbers of people who have multiple chronic conditions and I think that is part of the underlying cause.

The other part of the underlying increase is that support services within the community are overstretched, and so are not able to provide sufficient support to people needing care at home. This means they turn up at our A&E. We have had about a 10 per cent increase year-on-year in attendances at the emergency department and a 6 per cent increase in emergency admissions. These are people who actually do need to be in hospital but we’re not able to turn them around and discharge them as quickly as we might because of the constraints within the community sector. Also these people are deteriorating in the first place, perhaps, because they are not getting the support that they might otherwise have received at home.

This means that this winter has been far worse than last year. With this significant increase in demand, if we had a whole lot of spare capacity that would be one thing, but we were already operating at a really high level of occupancy. People who have worked here for many years say it’s the hardest winter they’ve seen.

Where are you financially?

It’s incredibly tight. We haven’t signed up to a control total yet and that’s despite performing well financially in 2016/17 where we did sign up and we are on budget nine months into the year. So on all accounts we have managed very well financially in 2016/17 but 2017/18 looks an incredibly difficult financial challenge. It’s hard for us to see at this stage how we could sign up and how we could make ends meet.

There’s no doubt that an injection of funds from a March budget into social care would improve things considerably. I think we would all say the same thing but whether it would close that financial gap? I doubt it would. I think that there is a question which is a question for the community about how much does the UK want to spend on its health care system and if that’s the budget that’s been given, then I think the question is: what is truly achievable within that budget. I don’t hear us having that discussion.

Will the STP help?

Getting people round the table and forming those relationships between health and social care is absolutely the right solution. I suppose what concerns me about it is that it takes a long time to create those relationships and to then effect change.

Is it the solution? Well, it depends what problem you’re trying to solve. So it’s absolutely part of the solution to get health and social care working together, shifting resources between these two buckets of money, so you can distribute the money to the areas that will have the most impact. Breaking down the barriers between health and social care, between physical health and mental health, between acute and community, this is absolutely what we should be doing.

But when you get 20 people or 40 people sitting around a table it’s an incredibly slow process to get decisions made and there is a question in my mind: I am a big fan of accountable care and having an organisation responsible for the health of a catchment population. The process we’re going through within the UK is a sort of accountable care partnership route and the concern I would have about the partnership route compared to the accountable care organisation (ACO)* route is it takes a lot longer to get consensus decision-making and have we got time to build those partnerships, to get the consensus, to get the change?

I’m not a big believer in letting a 1,000 flowers bloom. I do believe in setting and implementing a strategy, making some tough decisions up front and getting on with it. The Lansley reforms have not moved the NHS forward. If we know that why don’t we do something about it rather than tiptoeing around the edges? And do it now as there is no time to waste.

* An ACO is a formal organisation. An accountable care partnership is a looser structure, with weaker formal accountability and structure, and represents voluntary co-operation between independent organisations.

What are your greatest concerns at the moment?

Number one is the balance between trying to manage a two-year contract financially and, at the same time, support innovation locally.

Number two is the effect of an STP [sustainability and transformation plan] process that hasn’t yet started to talk about clinical engagement, as I come from the perspective of clinical commissioning.

Number three would be the balance between larger commissioning organisations being the right thing to do versus member-based organisations trying to keep their members on board as that is important as well.

What are your financial prospects for the years ahead?

The objectives for the planning round are all about financial balance. That’s what we were told to achieve. We have not agreed contracts yet. It’s completely understandable when you see the other side’s point of view. Either something gives them problems or it gives us problems. We want to agree this, they don’t want to agree that.

To make the books balance to 2021 we needed a five-year transformational plan which had to include some fairly big things that were bound to affect the first years. Where does the money come from for this? It comes from the resources that we have, which means from the providers. But then we were told to guarantee the amount of money for providers for the next two years. Where’s the logic?

Has the STP helped?

First, in our particular case, the STP footprint is an odd footprint given what it needs to do.

Second, the STP was a planning process, therefore in a planning process what you do is make a plan and then make that plan a reality. There’s no vehicle by which to make that plan a reality, no accountable body, so it’s basically done on goodwill. Therefore we’ve got many different organisations in an STP that’s the wrong size trying to work in a collegiate way where they have no authority. That’s not a planning process, that’s something else. I think there is a question about who they [national bodies] put in charge of STPs and whether they [national bodies] make them viable bodies to make a difference. And actually they’ve got to do one thing or the other. Either we give them the power or we don’t give them the power.

Though not a planning process, I’d say it’s still been helpful, definitely. I’d say that people are definitely working together more closely as a consequence. I think it has been bizarrely helpful to expose the many further weaknesses – not in a negative way – but it’s become more obvious where people have to own how much money they actually have rather than, for example, hide behind the fact that they’ve got their own board. So [the process has led to] shared collective understanding of the challenges, an ability to build a shared vision, possibly, between commissioners and providers. That alone would be a good reason to do it. Interacting with social care and local authorities – no one thinks that’s the wrong thing to do. Getting that as an agenda item is important – I’m not saying it’s got the relationship right yet – but it is now an agenda item.

What gives you optimism for the future?

If I’m honest we’ve always had big questions all over the place. So we’re quite excited by the fact that we can solve them and get on with it. The tension will be what do people actually want to get done and how will we actually make good care happen at the same time as all that other stuff that’s going on. That’s the real question and that’s what we have prided ourselves on trying to deliver.

I think the job of a good leader is to make it all work despite the circumstances. The way you start is to have a good understanding of what the issues are and I think I understand well what the issues are and how they sit. So that’s actually a much better place than being deludedly happy about changing things when they face big problems that haven’t been dealt with.

Therefore I feel quite positive because we actually have a good grasp of what is going on. And if you have that then you can start saying ok, in that case what are we going to do? You need to think about how we put big decisions in front of the public saying, we have to make these decisions about where we are going to spend our money, what we’re going to do and how we’re going to transform health care.

What are your greatest concerns?

First, that the government seems to believe that the NHS has been adequately resourced and fails to recognise that the NHS has its worst financial settlement ever.

Second, I am very worried about the narrative that all we need to do is give social care more money. Yet a very significant proportion of delays in hospital are still mainly down to delays in waiting for NHS care. We are at risk of falling into the trap of the government putting a reasonable amount of extra money into social care with the not unreasonable expectation that the NHS will then deliver because we been telling them that social care is the only problem, and then [the NHS] actually failing to deliver.

Of course I understand the call for more social care money. We are having a number of services decommissioned which is causing some of our service users to stay longer in hospital or, worse, come into hospital when they would not have otherwise needed to.

Are STPs helping?

Ours started as a pretty frustrating process as it did for most people. But we got beyond that. We had already done some work in the patch, so we knew we’d not gone far enough on acute reconfiguration. [So far] there have been very few firm ’we’re going to close this, we’re going to close that’ decisions but at least there’s discussion between clinicians, chief executives and boards about doing a proper job on acute services.

Another workstream looks at delivering services in a more ‘wrapped around’ way in communities and still saving money. There is very little evidence that a significant increase in community services necessarily reduces the demand into the acute system but even if it doesn’t, from a quality and co-ordination point of view, from a patient and service user point of view, it has to be absolutely the right thing to do. But I have no confidence that it will deliver the financial bottom line.

Finally, it took a lot of effort, but we have managed to establish a mental health and learning disability workstream. This is doing three things: it’s helping with the implementation of the Five year forward view for mental health; it’s looking at the lessons from how we’ve reduced our reliance on beds in mental health and learning disability; and it’s genuinely looking to integrate physical health and mental health.

Financial prospects

We are a bastion of PbR [Payment by Results]. The PbR problem guarantees that the share of the pie going into mental health and community services will continue to decrease.

We have looked at how much our income has changed from the local CCGs [clinical commissioning groups] over the past five years and it has changed by pennies: just 1 per cent cash uplift and our contract values will fall in 2017/18. Our share has gone massively backwards and I’m sure we’re not alone in that. Somebody else has hoovered up the money and there’s only really two places: prescribing and acute hospital services.

Forget parity of esteem, forget the mental health Forward View: while demand in the acute sector goes up and there is a guarantee it’s paid for, the share for mental health and community will go down. To be clear, I don’t blame the CCGs: they don’t have the money unless they take it out of the acutes or cut prescribing.

How are you managing?

We did start, some years ago, benchmarked as over-bedded and we probably were. So we have had a process of transformation where we have managed to close lots of wards but we re-invested a significant chunk of that back into community services such as guaranteed 24/7 crisis resolution home treatment. However, we’ve just about reached the end of the track on closing beds.

Our main strategy is on the informatics side, where we have a very clear, very ambitious strategy. We’re also doing skill-mix reviews to see if we can reduce the use of expensive staff, starting at the bottom looking at the competences required. We also have some other proven initiatives to roll-out across the patch.

However, there is an imbalance between demand and capacity in CAMHS [child and adolescent mental health services] and problems in prison health. But if we received the Mental Health Investment Standard I am confident we would be able to deliver the mental health Forward View. Others areas may not be in the same position.