News / Provider finances ‘broadly on plan’ at Q1

NHS Improvement chief executive Jim Mackey (pictured) said providers were ‘broadly on plan’ at the end of the first quarter. The forecast £523m overspend compares with a planned overspend of £496m. Similarly the overspend for the sector in the first three months of the year stood at £736m, £30m over the plan of £706m.

The Q1 variance was a result of total income being 0.3% below plan, while costs were 0.1% higher than pan. In total 67 providers reported an adverse year-to-date variance to plan at Q1, with 10 overspending plan by more than £5m. Some 109 providers are currently forecasting to be in deficit at the year end.

NHS Improvement’s report underlined that access to this year’s £1.8bn sustainability and transformation fund (STF) would again be linked to the achievement of agreed financial control totals. Some 206 (out of 233) providers have agreed to these totals with 166 (71%) delivering them in the first three months.

At the end of August, a report from the Nuffield Trust argued that the contribution of the STF to providers’ underlying financial position should be discounted due to its non-recurrent, uncertain status as provider income. While providers reported a net deficit of £791m in 2016/17, the research body claimed the real underlying deficit – stripping out non-recurrent income and non-recurrent savings – was £3.7bn.

NHS Improvement’s report stressed that the £1.8bn of funding used for the STF had been committed to the NHS by the government on a recurring basis. However it said it was working with NHS England to ‘develop a sustainable strategy for how this funding should flow to the sector’.

Over the whole quarter, total spending on pay was £57m over plan. But Mr Mackey drew attention to further reductions in agency staff bills. Overall spending on agency shifts in the quarter was £169m (22%) lower than during the same period last year - £282m (32%) lower than Q1 in 2015/16.  And for the first time recent year, providers reported an underspend against their year-to-date plan for agency spending, which fell as a percentage of total pay to 4.6% (6.5% in 2016/17 Q1). 

‘The NHS is relying less on agency staff and turning to more cost effective bank and substantive roles,’ he said. ‘As a result, bank spend has increased and for the first time exceeded agency expenditure for the quarter.’ NHS Improvement’s report added that even with the bank increase, overall temporary staffing spend (agency and bank) has fallen by 6.5%. (See Keeping up the pressure, Healthcare Finance September 2017.) 

The sector reported a £28m underspend on non-pay items in the quarter, including underspends on general supplies and drugs. However within this net underspend, the purchase of healthcare from NHS and non-NHS bodies exceeded plan by £39m (9.2%). The oversight body said this suggested ‘capacity constraints may still be an issue’. 

Efficiency savings reduced total operating costs by £520m (2.5%) during the first quarter – 16% behind plan. Just over 80% of savings had been delivered through recurrent schemes, compared with a planned level of 93%, and NHS Improvement said providers continue to rely on non-recurrent schemes to bridge the shortfall. 

Providers had targeted overall savings for the year of £3.7bn. But on the basis of current projections, the report estimated providers may fall short of this target by £147m. Even at this slightly reduced level, detailed schemes still need to be identified for a further £332m of savings. 

Mr Mackey said the figures represented a ‘very strong start to the year’ and providers ‘should be applauded’.  

In the face of intense operational challenges, NHS Improvement said that A&E performance showed signs of improvement with performance against the four-hour standard running at just over 90%. However acute bed occupancy, which averaged 89.1% during the quarter, remains a problem. 

We need to focus hard on the bed situation,’ said Mr Mackey. Our hospitals are very busy already and it’s still relatively early in the year. Last winter we ended up opening over 4,500 beds at the busiest times, mostly in an unplanned and unproductive manner.’ A more planned approach would be needed this year.