National Audit Office: Is the NHS financially sustainable?

Source: NHE March/April 2019

Is the NHS financially sustainable? Robert White, director of health value for money studies at the National Audit Office, finds out more.

On 25 February, this question was posed by the Public Accounts Committee to a witness panel of senior health officials, and was met by a simple ‘yes’.  The committee was not so sure.  While it provides ‘air-time’ for descriptions of future improvements, its attention is not diverted from the main purpose of these sessions: holding the national bodies to account for their financial stewardship. Using our report on NHS financial sustainability, the pictures at a national and local level are worryingly different.  To this end, the committee expressed its concern over the offsetting of local surpluses and deficits in presenting the national position.  

The witness panel comprised of Simon Stevens (NHS England CEO), Ian Dalton (NHS Improvement CEO), the permanent secretary, Sir Chris Wormald; and David Williams, the Department of Health and Social Care’s director general for finance.  There was an admission by senior officials that the strategy of managed deficits in the NHS needed to change and several measures in place last year (which continue) were regrettable.  Our report examining the 2017-18 financial year and 2018-19 year highlights a number of these. 

For example, the pattern of transfers from the capital budget to the revenue account did not go unnoticed. Funding originally earmarked for investment in buildings and equipment has repeatedly been transferred to prop up day-to-day costs (£1bn of its £5.6bn capital fund in 2017-18). Without well-maintained buildings and equipment, it is unclear how the NHS can maintain quality of care and find the headroom to transform and modernise.  

The reliance on discrete pots of extra financial support is growing year by year, whether that’s through the Provider Sustainability Fund (£1.8bn in 2017-18) which improves a trust’s reported budget position, or the provision of interest-bearing loans (£3.2bn in 2017-18) which loads NHS trust and foundation trust’s balance sheets with debt.  Either way, there are large injections of cash needed over and above what ought to be a predictable system of paying for the costs of providing healthcare.

As our report shows, ‘the NHS’ balanced its budget, but it is at the level of local NHS bodies where the real financial difficulties reveal themselves. The provider sector turned in a £991m deficit, CCGs in aggregate overspent by £213m, and NHS England released reserves and underspent by £1,183m to balance these pressures. This raises the obvious question of whether the money is getting to the right places.  There is another provider deficit expected in 2018-19, marking the third year in a row when various national support funds – intended to get the provider sector back into overall balance – have failed in their intent.  With 10 trusts accounting for 70% of the net deficit in 2017-18, traditional financial recovery routes are called into question.   

Against this backdrop, there has been a significant deterioration in patient waiting times. Managing capacity when staffing shortages exists and resources are tight is complex to say the least. However, along with managed deficits, there appears to have been an unmanaged decline in performance against the NHS constitutional targets. For example, 88% of accident and emergency patients were seen within four hours in 2017-18, against a target of 95% and a rate of 92% in 2015-16.  Against a target of 92%, only 87% of patients waiting for routine, non-urgent conditions started treatment within 18 weeks, and around 80% of cancer patients started treatment within 62 days of referral.

More needs to be known about demand; it has been steadily rising for many years. For example, between 2011-12 and 2016-17, the total number of people admitted to hospital grew by an annual average of 3.4%.  This is partly attributable to an ageing and growing population in England. However, this does not account for all the rise in demand, and there is a limited understanding regarding this remaining increase.  We strongly recommend national bodies support and work with NHS bodies and their local authority partners in improving this. 

Thinking ahead to 2019-20 and beyond, the committee recognised the benefit of the £20.5bn announced for the NHS, but where the long-term plan is concerned, it reminded the panel of a set of known-unknowns. As the funding remains unclear for education and training, social care, public health, and capital expenditure, the committee could not reconcile the confidently delivered ‘yes’ to its earlier question.  Payment mechanisms currently in place are far from simple and are not set in a way that encourages healthcare providers to collaborate, nor do they incentivise the sensible management of demand. The changes to the financial architecture announced in the long-term plan are welcome, but must be made to work within integrated care systems and sustainability and transformation partnerships that, at present, hold no statutory form.  Getting the governance and accountability right in these collaborations should not be overlooked.


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