04.06.18
Trusts struggling financially penalised with 6% interest rates
NHS providers placed in Financial Special Measures are being hit by interest rates as high as 6%, according to a new report.
The report, published by the Healthcare Financial Management Association (HFMA) in conjunction with former health secretary Alan Milburn and consultancy PwC, says that at the end of 2016-17, the total debt accumulated across NHS trusts and foundation trusts was £4.9bn, with an associated interest cost of £169m.
Around 42% of providers had debt associated with working capital or revenue support from the department of health and social care (DHSC), with over half in deficit.
By Q3 of 2017-18, 139 trusts reported a year to date deficit, with 11 in Financial Special Measures.
The authors of the report warn that trusts experiencing “significant financial challenges” face being further financially penalised, with interest rates rising to 6% for those in Financial Special Measures.
For some trusts, this could mean that the debt burden is likely to become unsustainable, “with little to no prospect of it ever being repaid.”
At Q3 last year, five trusts had year to date deficits in excess of £50m, with one already past £100m for the year.
Last week, NHE reported that the NHS ended the 2017-18 with a deficit of almost £1bn - £464m more than anticipated.
Whilst the organisations in the private sector that borrow cash have a possibility of being allowed to fail, with debts being restructured to a more manageable level or entering insolvency, there is no equivalent mechanism in place in the NHS, meaning that organisations continue to accrue debt that they are unable to pay, attempts to turn around its financial performance are hampered, and the money is unlikely to be repaid to the DHSC.
The report argues that the current “complex system of funding flows” does not support the proposed new models of more integrated care introduced in the Five Year Forward View, and so is in need of change – a recent survey revealed that 76% of HFMA members agree that the current financial structures in the NHS are not fit for purpose.
It recommends that long term funding allocations and contracts should be introduced across the NHS, with a long term financial settlement for the NHS being replicated within the system to give local health economies the ability to plan and invest for the long term.
It also recommends that the capital funding system be redesigned, with a prohibition on future capital to revenue transfers, and a National Restructuring Fund should be created with clear access rules and prioritisation criteria aimed towards the development of out of hospital assets and infrastructure needed to deal with the challenges of future care needs.
Thirdly, it suggests internal restructuring of debt between NHS organisations, arguing that the signifiant and growing proportion of internal lending that has built up through funding historical deficits places additional pressure on the financial performance of trusts that are already in difficulty.
Instead, it argues that this debt should be converted to equity and the future approach to providing working capital funding for providers in deficit be approached in a similar way.
NHE has approached the DHSC for comment.
Top image: ljubaphoto
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