News / Flory: NHS trusts face tough decisions to restore finances

By Seamus Ward

A number of the remaining non-foundation trusts face ‘very challenging decisions’ as they seek to restore their financial positions, though there is better news on the foundation trust pipeline, NHS Trust Development Authority (TDA) chief executive David Flory (left) told his November board meeting.

Mr Flory’s report to the board and a paper on financial sustainability in the remaining 99 non-foundations showed concern over the sector financial position.

In September, the TDA said 30% of all trusts and 48% of acute trusts forecast a deficit in 2013/14. The new financial rules-based approach following the introduction of the new commissioning landscape removed much of the transitional support previously available to trusts. As a consequence, more trusts planned a deficit in 2013/14.

NHS trusts continued to face operational and financial challenges, Mr Flory said in his November paper. ‘It is clear that

the shortfall in income experienced by a number of NHS trusts will not be addressed during 2013/14, meaning our focus must now switch to reducing the number and scale of in-year deficits and working with NHS trusts to achieve financial balance in subsequent years.

‘We cannot allow the problems experienced in 2013/14 to recur. Because trusts are rightly required to maintain and improve the quality of their services, restoring their financial position will require some very challenging decisions for a number of our organisations.’

Mr Flory added that the quality and financial challenges were making achieving sustainability difficult. ‘For those NHS trusts that are neither close to achieving foundation trust status nor moving through the transaction process, the 2014/15 planning process will be a critical test of their potential to achieve sustainability. More organisations where significant service change or organisational change is needed are likely to emerge as a result of the planning process.’

Grant Thornton said 32% of NHS trusts and 23% of foundations, relied on non-recurrent external revenue funding in 2012/13 or were expecting to receive this support in 2013/14.

As well as the tough financial environment and an ageing population, workforce issues were an increasing issue for providers. Its report, Alternative therapy: strengthening NHS financial resilience, said almost nine in 10 trusts fail to meet their sickness absence targets and plugging the gaps with temporary staff is costly.

On average, temporary staff accounted for 9.7% of total staff costs in non-FTs and 8% in FTs.

Grant Thornton director Paul Hughes said the NHS could learn from local government. ‘In the 2010 spending review, there were 28% cuts in local government spending and this led councils to look more fundamentally at how they do things; to work together to deliver some services. It feels like the NHS is at the place where local government was three years ago.’

Despite the concerns over finances in some organisations, Mr Flory said there were positive signs. Organisations were beginning to move through the foundation trust assessment process once again.

Three aspirant foundations are in the current wave of Care Quality Commission inspections, with a further 10 (including six non-acute providers) scheduled for the next wave between January and March.

Foundation trusts recorded an overall surplus of £106m at the end of the first six months of 2013/14, but 38 trusts reported deficits totalling £117m, according to Monitor. In its review of the second quarter, the regulator said the majority of the aggregate deficit could be attributed to 12 trusts where it was taking regulatory action. Foundations were £107m short on their efficiency savings plans and earnings were lower than expected because of this and increased agency staff costs.

The regulator said for the first time the sector delivered lower EBITDA (earnings before interest, tax, depreciation and amortisation) than planned – 5.3% rather than 5.5% – due to a disproportionate rise in non-pay costs relative to revenue growth and unplanned use of contract and agency staff.