A question of stability

Though the NHS in England is treating more patients, it has yet to achieve the transformation of its services or financial regime needed to meet rising demand. That’s the opinion of the National Audit Office.

And though it sounds like a familiar tale, the auditors’ recent review of operational and financial sustainability lifts the lid on the overall position of the NHS. This includes a stinging criticism of the government and NHS – it said new funding allocated by the government to stabilise NHS organisations has not fully achieved its aims. Indeed, short-term measures have made some parts of the NHS ‘seriously financially unstable’.

The NAO published two reports – NHS financial management and sustainability, and a Review of capital expenditure in the NHS (see box). The former is the NAO’s eighth report on NHS sustainability, and it has repeatedly warned about the state of the health service finances.

Its last report in January 2019 took account of the additional £33.9bn in cash terms over five years (3.4% in real terms) announced in the long-term funding settlement for the NHS. The auditor noted that it could not make a conclusion on the adequacy of this funding until other health allocations, such as capital and public health spending, were settled.

However, growth in waiting lists, increases in waiting times and the burden of substantial deficits in parts of the service – offset by surpluses elsewhere – did not add up to a sustainable picture, it said.

The government has still not announced long-term funding of capital, education and public health – these are due to be unveiled in the spending review in the summer.

The most recent sustainability report said trusts reported an aggregate deficit of £827m in 2018/19, not including a favourable technical adjustment of £256m following the collapse of Carillion. The deficit is the equivalent of 1% of trusts’ income. Clinical commissioning groups ended the year with a combined deficit of £150m – 0.2% of CCG allocations.

However, with NHS England underspending its budget for central functions and specialised commissioning by £1.066bn (3.6%), overall the NHS recorded a net surplus of £89m.

CCGs failed to achieve financial balance despite a rise in funding and the creation of the £400m Commissioner Sustainability Fund (CSF). CCG overspends did fall compared with the previous year – a £150m deficit compared with £213m in 2017/18, but this included payments totalling £384m from the CSF.

Trusts also received additional support – £2.45bn compared with £1.8bn in 2017/18 – and planned for a £394m aggregate deficit. The final deficit was £433m higher at £827m (£991m in 2017/18). But the system of control totals appeared to largely work for those trusts that accepted them. In 2017/18, 71% of trusts that accepted their financial targets reported their year-end positions to be at or better than plan. This increased to 75% in 2018/19.

As part of NHS long-term plan goals, the provider sector is due to return to financial balance overall in 2020/21, with no trust reporting a deficit by 2023/24.

While the trust sector is moving towards financial balance, the NAO was concerned about the level of one-off savings needed to get to the final position in 2018/19. The proportion of non-recurrent savings increased from 26% in 2017/18 to 31%. In the same period, the proportion of trusts in deficits grew.

The NAO also argued that the provision of sustainability funding had increased the variation in financial performance between trusts (£102m surplus to £180m deficit), as payments were contingent on achieving control totals. In 2018/19, less than 40% of payments from the provider sustainability fund (PSF) helped trusts eliminate or reduce deficits.

NHS England and NHS Improvement have recognised the PSF was not helping those most in need and have reduced the size of the fund to £1.25bn in 2019/20.

This enabled them to make £1bn available for urgent and emergency care and £1bn for the financial recovery fund (FRF). The latter is exclusively for trusts in deficit and in 2020/21 will be the sole source of sustainability funding. The NAO said this should help reduce variation in financial performance.

Underlying deficits continued to be an issue, indicated by the level of loans given to individual organisations. Trusts in financial difficulty owed the Department of Health and Social Care £10.9bn at year-end. Almost two-thirds (64%) of sustainability and transformation partnerships and integrated care systems (ICSs) were in aggregate deficit. With all areas due to become ICSs by April 2021, NHS England and NHS Improvement hope measures outlined in the planning guidance for 2020/21, such as writing down debts incurred before 2019/20 and more timely payment of sustainability funds, will improve cashflow and reduce the need for interim financial support. However, while the NAO believes the FRF will help reduce the need for interim support, it said loans will still be needed.

The report added that the current use of loans was ‘not an acceptable or sustainable approach to the financial management of major public bodies and the Department is reviewing options to address this’.

Gareth Davies, head of the NAO, said bodies at the centre had to adopt a longer term outlook. ‘The short-term fixes that were introduced to manage the NHS’ finances are not sustainable. The Department of Health and Social Care continues to provide some trusts with short-term loans just to meet their day-to-day costs, with little hope they will be repaid. This is not a sustainable way to run public bodies.

‘To bring about lasting stability, the Department and NHS England and NHS Improvement need to move away from short-term financial fixes and provide longer term solutions.’

The financial difficulties were set against a backdrop of rising demand. In 2018/19, the NHS treated more patients – more than 700,000 additional patients were treated within four hours in A&E – but continued to miss performance targets.

In A&E, there was a slight drop in performance against the four-hour target, with 88.1% being seen within four hours (88.3% in 2017/18). Only six of the 16 acute access standards were met in 2018/19. The number of patients on waiting lists for non-urgent treatment also continued to rise, from 3.85 million in 2017/18 to 4.23 million in 2018/19.

For Nuffield Trust senior policy analyst Sally Gainsbury, the report was a reminder of the fragile state of NHS finances.

‘The report raises serious questions about whether this new money will make a difference in the context of yawning staffing gaps, hospital trusts being forced to rely on one-off savings, short-term loans or emergency funds to balance the books, and the lack of a long-term financial settlement for social care,’ she said.

‘What’s more, this report makes clear the folly of missing out crucial areas of health spending, such as medical training, capital spending and public health from the plans to invest billions in the NHS. As the NAO implies, without clarity and a sustainable plan for these areas, the NHS is unlikely to succeed in delivering its own long-term plan.’

Financial improvement is pivotal for the NHS. Would the Treasury release more taxpayer money without the service achieving – or coming close to achieving – overall and individual organisation financial balance?

Sustainability hinges on financial assistance in the form of the FRF and writing off historical debt, as outlined in the 2020/21 planning guidance. But measures such as service transformation and demand management will be as vital to stem the causes of financial distress.