NHS Finance

22.11.16

NAO: NHS financial problems worsened by unrealistic targets and savings

Plans for delivering sustainable NHS finances have not been properly assessed and may not fulfil their goals, the National Audit Office (NAO) has warned.

The NHS ended the 2015-16 financial year with two-thirds of trusts in deficit, reaching a combined total of £1.85bn. The number of CCGs reporting cumulative deficits was 32 in 2015-16, up from 19 in both 2014-15 and 2013-14.

In its new report on NHS financial sustainability, the NAO noted that this meant plans from NHS England, the Department of Health (DH) and NHS Improvement to balance NHS finances were starting from a worse position than expected, because they were based on a maximum deficit of £1.8bn.

Sir Amyas Morse, head of the NAO, said: “With more than two-thirds of trusts in deficit in 2015-16 and an increasing number of CCGs unable to keep their spending within budget, we repeat our view that financial problems are endemic and this is not sustainable.

“It is fair to say aggressive efficiency targets have helped to swell the ranks of trusts in deficit over the last few years.”

He added that the DH, NHS England and NHS Improvement have put considerable effort and funding toward stabilising the system, but “have a way to go to demonstrate that they have balanced resources and achieved stability as a result of this effort”.

“Therefore, value for money from these collective actions has not yet been demonstrated,” said Sir Amyas.

The NAO found that both existing and future plans to ensure sustainable NHS finances had failed to demonstrate value for money. The auditors added that efforts to get NHS finances on track, such as large savings and efficiency targets, have damaged trusts’ financial positions and contributed to the current situation.

The cap on agency spending has slowed the rate of growth, but the NAO warned that it could “take years” to reduce the demand for agency staff. In 2015-16, trusts spent £3.7bn on agency staff, compared to £3.3bn the previous year.

In February 2016, the department transferred £950m of its £4.6bn capital budget to covering the day-to-day cost of NHS spending, but it had not assessed the impact of this on NHS efforts to achieve long-term sustainability.

Furthermore, the NAO warned that the DH, NHS England and NHS Improvement had not fully tested their plans for closing the £22bn funding gap by 2020-21. It added that some of the plans were based on unrealistic predictions, such as the failure to take into account the growth in A&E patients.

In addition, national bodies have not assessed the impact of all the wider cost pressures faced by local NHS organisations in plans for achieving financial sustainability. They also did not know what level of assessment trusts and commissioners would require and have made no accommodation for the impact of social care cuts.

NHS organisations also warned that the strict financial controls introduced in July 2016 were discouraging them from working with other bodies in their area in order to implement sustainability and transformation plans (STPs).

The NAO said that the DH, NHS England and NHS Improvement should test the assumptions in national and local savings plans, and analyse the impact of pressures on social care funding and implementing the cost of the seven-day NHS.

It also recommended that NHS England and NHS Improvement ensure that their measures for managing costs are realistic, and assess whether incentives are helping them achieve long-term sustainability.

A spokesperson for NHS England said: “This NAO report is largely a commentary on last year compared to the year before. The good news is that for this year, hospitals are on track to cut their deficit by more than two thirds.

“What’s more, latest figures published last week show that NHS trusts have continued their recovery and with NHS England are on course to balance their combined budget for 2016/17”.

But Professor John Appleby, chief economist of the Nuffield Trust, explained it was not realistic to expect the health service to meet its overspend targets this year.

“The current efforts to improve productivity will probably yield results in the long term, but the short-term pressures are becoming overwhelming,” he added.

Professor Jane Dacre, president of the Royal College of Physicians (RCP), noted that the NAO’s findings were similar to the RCP in its recent report, ‘Underfunded, Underdoctored, Overstretched’.

“Not only is the NHS struggling to balance today’s books, but it is unable to invest in new plans for joined-up services that are needed to transform and improve care in future by bringing it closer to the patient, and save money in the long term,” she said. “We need an NHS budget that meets the demand for health services now and in the future.”

Janet Davies, chief executive and general secretary of the Royal College of Nurses, said: “The NAO are giving the government a heavy dose of reality concerning NHS finances, and as we approach the Autumn Statement this week we urge the chancellor to take note.”

A DH spokesperson added: “We know finances are challenging for some parts of the NHS, which is why we have a strong plan to get back on track. We are already seeing progress, with 40 fewer trusts in deficit compared to this time last year.”

The figures for the second quarter of this year, published last week, showed that more trusts are coming out of deficit, but the total sum is £648m.

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