NHS finances: the year that was and the year that is

6 Apr 16

The last financial year was a bruising one for the NHS and this one looks to be tough as well. Here are five recollections of 2015/16 and five things to look out for in 2016/17

Many will wish to forget the 2015/16 financial year. It was described by even well seasoned NHS finance managers as the toughest since they joined the service.

As we embark on another financial year it would be good to reflect and learn from the five financial highlights (or lowlights depending on your perspective) that last year will be remembered for, and the five things to look out for in 2016/17.

The year that was: 2015/16

  1. Two sets of rules for two sets of providers

2015/16 might be remembered for the absence of a national tariff, the payment system that has governed £70bn worth of NHS services for over ten years. Concerned about their financial sustainability, the majority of NHS trusts and foundation trusts formally objected to the tariff for the first time, leading to the creation of two different payment systems last year. 

In response, the rules around how providers could object to the tariff were re-written, making it effectively impossible for NHS providers to ever object again.

  1. The optimism around the Spending Review came and went

The heady days of hope and optimism about NHS funding post Spending Review are sadly over. The NHS budget will only increase by 0.9% annually compared to a long-run average of 3.7%, and the frontloading of investment in 2016/17 is now required to mop up the provider deficit from 2015/16.

The NHS received a generous settlement compared to other government departments, but it does not feel like that now.

  1. New policy commitments without appropriate funding

2015/16 may be remembered as the year of the taskforce, with reviews into mental health, maternity and cancer services all hitting desks. All sensible and respected reports but questions started to emerge over how the recommendations would be funded.

We are still in the dark over how comprehensive seven day NHS services will be funded given implementation could increase provider costs by 1.5%-2%.

  1. A return to central control and grip

The financial situation deteriorated further during 2015/16: the number of trusts in deficit increased from 50% in 2014/15 to 75% this year and the provider deficit skyrocketed from under £1bn to around £3bn.

The national level responded with more grip and central intervention. Some measures were necessary, such as the introduction of caps on agency spending. Others were less well received, such as the introduction of centrally set capital and revenue financial targets.

Trusts felt micro-managed in an attempt to support the department stay within its budget, leading to unprecedented requests even for NHS trusts let alone autonomous foundation trusts.

  1. The Carter review identifies a quarter of the savings which will be required by the sector

February 2016 marked the long awaited publication from Lord Carter of suggestions for how the NHS could find £5bn of the £22bn in efficiency savings we need over the next five years. But with over 15 headline and 80 sub-recommendations the review felt more a wish list than a blueprint.

2015/16 will unfortunately not be remembered for providing clarity over how the rest of the savings challenge (£17bn) will be tackled. We are still missing a shared savings initiative like the previous ‘Nicholson challenge’.

 The year that is: 2016/17

  1. Provider sector deficit will shrink but not be wiped out

The frontloaded Spending Review settlement means the largest slug of funding in this parliament will enter NHS coffers in 2016/17. However, a £3-4bn recurrent deficit will not be wiped out overnight and we expect a net deficit position next year of at least £500m even under a best-case scenario.

  1. The national tariff has been resuscitated

We not only have a single national tariff again but also one that actually increases prices for the first time in over five years. More credible efficiency assumptions and recognition of at least some cost pressures that providers are facing have created a fairer and more deliverable tariff.

But there is increasing concern commissioners may not actually be able to afford this package, leading to very challenging discussions between providers and commissioners in the contracting round.

  1. A maintenance of control and grip

New for 2016/17 are “control totals” to set a maximum deficit position or minimum surplus providers must deliver this year. Even the handful of providers still in good financial health have been asked to sign up to challenging financial positions to support the financial health of the whole system. Finances are likely to go on being heavily managed throughout 2016/17.

  1. Controls on agency staff costs need to start delivering

On 1 April 2016, caps on hourly rates for cost of agency staff dropped to 55% above basic pay. Given that the provider sector spent over £3bn on agency staff over 2015/16, failure to tackle this represents the single largest risk to stabilising NHS finances in the short term. However, in the broader context of national workforce shortages some realism is needed over how much these cost control measures can achieve in 2016/17.

  1. New care models and devolution breaking the mould

In amongst all the challenges the NHS is facing, 2016/17 might still be remembered for doing things differently to change the landscape for NHS finances.

The devolution of £6bn of health and social care funding to Greater Manchester will provide new opportunities for how services should be commissioned, funded and delivered. At the same time, vanguards are developing new care models, such as accountable care organisations in Northumbria and Morecombe Bay, to radically redefine how local resources are managed. This would bring providers together with some commissioning and financial responsibilities, in an organisation that is responsible for whole populations.

So, 2015/16 was a bruising experience and 2016/17 is still going to be exceptionally tough but there is perhaps some reason to be optimistic compared to this time last year.

  • Phillippa Hentsch,
    Phillippa Hentsch

    policy adviser for funding and resources at NHS Providers. She tweets @Phentsch

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