NHS financial temperature check: the heat is rising

by Emma Knowles

06 July 2016

The latest NHS financial temperature check results from the HFMA show a continued decline in optimism by finance directors in their ability to maintain quality and balance their books.

The latest NHS financial temperature check results from the HFMA show a continued decline in optimism by finance directors in their ability to maintain quality and balance their books. More than one in five finance directors now think the quality of services will deteriorate in 2016/17.

July’s Temperature check is our fifth in a series of surveys of finance directors’ views on the big financial issues facing English trusts and clinical commissioning groups (CCGs). Finance directors and chief finance officers (CFOs) from nearly 200 organisations responded to our survey and I would like to thank all those who took the time to share their views. You can find the briefing here, there is also an infographic showing the key messages.

Our latest survey tells us plenty that we already know about the state of NHS finances, which has this year succumbed to a combination of cost pressures resulting in the worst financial results in its history. But what do finance directors think will happen in the year ahead?

The figures reported by NHS Improvement and NHS England make clear the scale of the NHS financial crisis. The NHS will soldier on as it always does and we expect trusts’ 2016/17 financial situation to improve through a combination of £1.8bn from the sustainability and transformation fund, agency staff cost caps and delivering cost improvement programmes. Worryingly the more than one in five finance directors who think the quality of patient services will deteriorate in 2016/17 outnumber those who think quality will improve. Trust finance directors are even more pessimistic about 2017/18.

Finance directors will be relentlessly focusing again this year on making efficiency savings. Among trusts, the main factors leading to higher than anticipated costs in 2015/16 were rises in agency staff costs (51% of survey respondents), underachievement of planned savings (33%) and increases in fines, challenges and deductions (23%). In some trusts the financial position was only offset by more short-term measures such as asset sales and applying accounting rules in the most beneficial way.

While most CCGs responding to our survey achieved or improved on planned performance, CFOs considered the main factors leading to higher than anticipated costs to be increases in programme costs for acute services (60%), slippage on planned savings programmes (46%) and increases in prescribing costs (40%).

The NHS continues to rely heavily on efficiency savings programmes to reduce the cost base to compensate for the lack of available resources. But savings are increasingly hard to come by. Although confident they can deliver more one-off non-recurrent savings, finance directors are not at all sure they can deliver the transformational changes that provide an ongoing reduction to expenditure. Only 39% of trust finance directors told us they are confident in delivering their recurrent savings plan.

But the most concerning sign that the financial crisis is set to continue is that local relationships may be becoming strained in the face of unprecedented financial pressure. Finance directors described the 2016/17 contracting round as the most challenging year ever. The majority of trusts and CCGs responding to our survey had contracts for 2016/17 services and activity that remained unsigned at the time of our survey. Respondents’ main issue was service affordability, which had led to protracted negotiations about reducing activity levels and QIPP savings requirements being written into contracts.

In spite of these challenges, finance directors need to work together ever more closely to deliver sustainability and transformation (STP) plans. Finance directors support the concept of planning across areas and see it as a way of driving collaboration and reshaping services. However, for some, the organisations in their STP area are starting from square one when it comes to working together. It is, perhaps, unsurprising then that only 35% of respondents believe the relationships between organisations in their STP area are strong enough to deliver the cross-organisational changes that are required. Just 16% of respondents are very or quite confident that the organisations in their STP footprint can deliver a connected strategic plan covering the period up to March 2021.

However, finance directors’ overwhelming concern is the tremendous pressure to deliver the financial targets for their own organisation and meeting the requirements set by their regulator. Many finance directors’ experience of joint working is that financial pressure to meet targets can often take precedence over the aims of the partnership. This will need to be resolved if the aims of the STPs are to be achieved.

The financial position at the end of 2015/16 shows that the NHS has insufficient funds to meet the current demands placed on it. The Brexit vote and its effect on exchange rates, inflation, workforce numbers and costs and, most of all, funding (finance directors are unlikely to be planning on the basis the NHS will receive an extra £100m per week) will combine to make 2016/17 a year of huge uncertainty.