27 January 2006
The Department of Heath must restructure the debts owed by the 169 NHS acute and primary care trusts or risk politically explosive ward closures and service cuts, the NHS Confederation has warned.
The NHS is forecasting a net deficit of £623m by the end of this financial year. Last December, the DoH instructed all its indebted trusts to reduce that deficit to £200m by March 31– just under last year's net deficit of £250m.
But both trusts and the Audit Commission have warned that those in debt will not be able to achieve financial balance without making substantial service cuts. The confederation has endorsed that view after an in-depth survey of 35 of the 63 most indebted trusts.
Nigel Edwards, head of policy at the confederation, said that a 'combination of high costs and too much activity' were emerging as key problems.
But a further underlying issue was the DoH's resource accounting and budgeting regime, whereby a trust's overspend one year was deducted from its funding allocation the next. That means that to recover financial balance, trusts have to reduce their expenditure by twice the original overspend.
It's very clearly is a very major issue,' Edwards told Public Finance. 'The long-term solution is going to have to be that if your income and expenditure is back in balance, then your historic deficit will be restructured into some form of long-term debt.'
He added that the regime appeared ill-suited to the new payment by results hospital funding system, which is scheduled to cover 90% of acute activity from April this year. 'RAB works at the moment because of the way we get our resource allocations, but under PbR the money doesn't come down to you like that any more, it's related to your activities.'
But on January 25 Health Secretary Patricia Hewitt dismissed claims that the NHS faced a financial crisis, as she sent teams of experts to turn around the deficits in 18 trusts.
Hewitt said: 'Despite all the talk of a so-called financial crisis, the projected overspend at the half-year stage still accounts for less than 1% of the total NHS budget.'
Before Christmas, the Department of Health commissioned KPMG to visit the 62 trusts and strategic health authorities with the biggest financial problems. The accountants studied the trusts' books and placed them in four categories – 18 trusts (nine primary care trusts and nine acute trusts) were judged to be in need of urgent intervention.
PFjan2006
