Action to recover finances as trust position worsens

03 December 2018 Seamus Ward

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At Q1, the sector forecast a £519m deficit. NHS Improvement said this was unaffordable and agreed an action plan with NHS England to produce a balanced position at year-end. Commissioners were asked to deliver a £265m underspend to contribute to this. At Q2 the commissioning sector is on track to meet this – and could underspend by £450m at year-end.

NHS Improvement has worked with providers to confirm the level of improvement that could be made, initially targeting £254m at the end of Q1. Using the provider sustainability fund (PSF) framework, the oversight body offered providers additional bonuses for improving their financial position. A small number of providers took up the opportunity to receive the payments, allowing NHS Improvement to reset the planned forecast deficit to £439m – a reduction of £80m.

However, at Q2 trusts’ aggregate position deteriorated. The forecast deficit – calculated after applying the provider sustainability fund – was £119m higher than the reset plan of £439m.

The year-to-date deficit of £1.23bn was £87m more than planned. All overspending at month six was in the acute sector, which had an aggregate deficit of £1.7bn (£257m worse than plan). NHS Improvement said the financial position in nine trusts had deteriorated by more than £5m over the quarter and the trusts’ boards must take ‘firm action’ to achieve their plans.

Much of the deterioration in the financial position was due to increased pay costs as trusts face greater demand. Once the effect of the new Agenda for Change pay deal is stripped out (£410m), overall pay costs were £151m higher than plan in the year to date, largely due to agency and bank spending. 

The report said the overspend was driven by volume increases rather than agency rates – the average price per shift was 15% less than at the same point in 2017/18.

The increase in agency and bank spending reflects rising demand – A&E attendances were up by 4% compared with Q2 in 2017/18. The waiting list for diagnostic tests was 5.1% higher than the same period in 2017/18. Emergency admissions at trusts with major A&E departments were up 7% on Q2 last year. As a result of the rise in emergency admissions, providers struggled to deliver planned activity – the elective waiting list was 3.9 million patients at the end of September, 7.3% up on last year.

Emergency care income was £218m (3%) higher than plan, but elective income was £116m (2.4%) lower than plan. High-cost drug income was up £76m (3.5%). The Q2 report said this was ‘continuing the trend previously identified by which profit-making elective income is crowded out by loss-making non-elective income and zero-margin pass-through drug costs’.

news_siva anandaciva portraitSiva Anandaciva (pictured), the King’s Fund’s chief analyst, said the report highlighted a tough winter ahead. ‘Despite the eye-watering financial deficits reported by many hospitals, the NHS as a whole remains close to financial balance, underlining the need for significant reforms to NHS financial management in the forthcoming NHS long-term plan,’ he added. 

The new funding will not be enough to address all the pressures facing the service. ‘It is vital that sufficient funding is dedicated in the plan for developing new models of care, building on the work currently taking place in integrated care systems up and down the country.’

NHS Providers’ chief executive Chris Hopson said trusts must be set realistic operational and financial targets. ‘They must be properly funded to break the current cycle of ever-worsening performance. And we still need more urgent action to address workforce shortages,’ he said.