Providers count cost of missed savings as month six financial position deteriorates

In figures for quarter two, the provider sector reported a year-to-date deficit of £1.15bn (against a plan of £1bn), with a forecast full-year outturn of £623m. If accurate, this would be £127m more than planned. The year-to-date position has deteriorated since quarter one, when the sector deficit was £30m up on plan.

NHS Improvement said cost improvement plans (CIPs) had reduced operating costs by £1.26bn (2.9%) in the first six months, but this was behind plan by £169m. Providers had maintained efficiency levels of previous years and were on track to live within the agency cost ceiling of £2.5bn in 2017/18.

Despite this, the largest area of under-delivery is on pay costs, which was £134m behind plan. Trusts forecast that the adverse variance on pay CIPs would be £290m by year-end.

Much of the shortfall on CIPs was due to lower than planned recurrent savings. In the first six months, recurrent savings totalled £961m – £354m less than planned. This was partially offset by non-recurrent savings, which amounted to £296m, £185m more than planned.

The year-end forecast is for recurrent savings to reach almost £2.9bn, £493m less than plan, while non-recurrent savings will rise to £598m – £283m more than plan.

In the latest HFMA NHS financial temperature check finance directors were greatly concerned about their ability to deliver CIPs, with 66% not confident they would be delivered. Finance directors were also pessimistic about the delivery of non-recurrent savings plans.

NHS Improvement said £538m (42%) of the total Q2 savings was due to measures related to the Carter recommendations. At year-end, it is forecast they will lead to £1.4bn (41%) of savings.

But the oversight body warned that trusts will have to step up their savings activity – by Q2 they had achieved 36% of forecast efficiencies for the year. However, there was some evidence that providers were able to increase delivery in the second half of the year.

While total income was broadly on plan, changes to the national tariff alongside the introduction of HRG4+ have had an impact on income from elective, first outpatient and follow-up outpatient activity. Elective income was £124m below plan, for example, while non-elective income was £126m above plan, confirming the continued operational pressure in this area. NHS Improvement said non-elective activity had ‘crowded out’ elective work, resulting in lost productivity, causing trusts to miss their plans and lose access to sustainability and transformation funding (STF). Unallocated STF totalled £292m at month six.

NHS Providers’ chief executive Chris Hopson said the deteriorating financial position was a concern. He added: ‘Despite great efforts, trusts are slipping behind on the savings required of them. However, they are still on track to reduce the provider sector deficit compared to last year. Given the overall NHS financial settlement this year, that would be a great achievement.’