The NHS provider deficit – what’s next?

21 Jun 16

The NHS needs to chart a tough course back to balance. But a new approach is needed, one that stresses support and not blame for failing to meet the impossible

The 2015-16 financial position for NHS trusts and foundation trusts was announced at the end of May. The key facts were stark: 65% of the provider sector is in deficit, to the tune of nearly £2.5bn, with the underlying deficit likely to be far greater. But what does this mean as we move into the second quarter of 2016-17?

The Treasury awarded extra money to the NHS in the 2015 Spending Review on the proviso that the provider sector would be able to get back in financial order. They want rules used to make providers achieve balance at the end of 2016-17. This means every provider board must have mandated saving targets and be held very strongly to account if they miss them. 

Guidance released for the sector at the end of the last calendar year was unambiguous. £1.8bn of ‘sustainability’ funding, designed to close the deficit, is being awarded to trusts in 2016-17 that hit negotiated financial saving targets as part of a ‘control totals’ process. However, it also said if providers are more than £1.8bn in deficit at the end of 2015-16, they would have to agree greater financial stretch targets to close the gap.

But now we have unambiguously missed the sector aggregate figure (and by roughly £700m) is this really a feasible option? Only around half of providers have signed up to the first round of proposed control totals and getting the rest to sign is not going to be easy. Control totals are viewed by some as unrealistic and unmanageable.

However, not signing up to control total targets, or signing up and then missing them may be very problematic because of the clash of interpretation about what to do and who is most at fault when finances veer off course. Speaking to people in the system, there seems to be basically two views amongst national leadership: demand providers climb the rigging, adjust the sails and hope that turns the ship around in time; or get everybody on the same side of the ship, and lean as much as possible to drift away from the rocks.

Which view ultimately prevails will set the tone for the year ahead.

Providers were already planning on doing everything within their power to cut costs for this financial year to meet a (now notional) £1.8bn deficit. However, even the most financially astute and well-managed provider will struggle in an environment when demand and costs rapidly outstrip revenue, and other services such as social care and public health experience even more dramatic funding pressures.

The whole system therefore, not just under-pressure NHS finance directors, has to respond coherently and collectively. And for the whole system to respond, there needs to be realism from national leadership about what is a genuinely achievable provider sector aggregate figure by the end of 2016-17, and a strategy put in place based on that realism. Jim Mackey, chief executive of NHS Improvement, has already signalled publically that he realises the sector will not be in balance at the end of the year, but it is unclear if this view is shared by other key players with responsibility for NHS finances.

So what is a realistic strategy? Realistic means not assuming that integrating services and better local working is going to ‘save the day’ within this financial year. It means ensuring providers are not penalised by removing sustainability funding for missing targets for reasons beyond their control. It means building on existing national support and advice offers such as the NHS Improvement Financial Improvement Programme. And it means the removal of out-of-step penalties for those who miss hugely stretching targets.

These changes in approach do not mean there must be a resounding absence of responsibility in the system for providers who are simply not efficient enough. But if the targets are so stretching that many high-performing providers are likely to miss them, you remove the ability to first truly identify those providers who genuinely do need to be held to account, and then to perform the correct level of intervention.

But asking people to achieve the impossible and blaming them for failing is simply not a credible strategy anymore. We need a coherent approach that recognises the gap that has emerged between the forecast and reality. Putting more pressure into an already fraught system is not the way to do it.

  • Edward Cornick
    Edward Cornick

    Edward Cornick is policy adviser - finances at NHS Providers. He tweets @edcornick

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