The NHS 10-year plan: how much will be spent on NHS deficits?

1 Aug 18

NHS providers racked up a deficit of just under £1bn in 2017-18. The King’s Fund’s Richard Murray looks at how much the prime minister’s 3.4% real-terms growth a year- announced in June - will go into removing these deficits. 

 

NHS providers (or I should say, NHS acute providers) as a group have been in deficit for several years.

But in 2017-18 as in 2016-17, this deficit was more or less exactly offset by underspends in NHS commissioners.

The PM’s funding commitment applies to the NHS as a whole and the NHS as a whole is not in deficit – there is ‘just’ an enormous imbalance between commissioners and providers at national level.

Of course, in 2017-18 NHS providers also relied on access to the £1.8bn Sustainability and Transformation Fund.

Before panicking that the 3.4% will therefore need to absorb this pressure, we need to remember that the successors to the fund – the £2.4bn Provider Sustainability Fund and £400m Commissioner Sustainability Fund – are also part of the definition of ‘NHS’ spending and therefore also benefit from the 3.4 per cent rise.

No budgets need to be cut to fund the Sustainability Funds because the budget for them already exists and is part of the prime minister’s funding commitment.

Will a net NHS deficit emerge this year over and above the £2.8bn sitting in the Sustainability Funds? Possibly.

On the one hand, we know from The King’s Fund’s own quarterly monitoring report that many organisations are struggling to balance the books in 2018-19.

On the other hand, the government has shown itself unwilling to allow the Department of Health to overspend, topping up its budget twice in 2017-18 and it has become something of a tradition now for commissioner underspends (usually in NHS England budgets, rather than clinical commissioning groups) to pop up at the end of the year.


‘The imbalance between commissioners and providers at national level also masks huge variation across providers, CCGs and geographies with some providers in healthy surplus and some CCGs is deep difficulties.’


However, even if the deficits of NHS providers may not be a direct affordability challenge to the NHS as a whole they are a critical policy challenge.

Even worse, the imbalance between commissioners and providers at national level also masks huge variation across providers, CCGs and geographies with some providers in healthy surplus and some CCGs is deep difficulties.

This reflects a wider system of financial flows that is in deep need of reform- a ‘wholesale shift’ as Simon Stevens, chief executive of NHS England, called for recently.

Aside from national and local imbalances the NHS has nearly £3bn in various sustainability funds; a system of control totals that for many organisations look simply undeliverable, a set of surpluses in other areas (some sitting with commissioners, some with a few providers) that provide no benefit to the organisation that created them as they are usually not allowed to spend them.

On top of this, some areas are now experimenting with system control totals.

The effort required to keep this increasingly Byzantine system afloat is surely unsustainable.

At least on paper (indeed in legislation), we have a system of paying acute hospitals through the national tariff that (obviously) does not cover provider costs and is rooted in an earlier model of reform based on competition and its rewards for rising activity.

Yet looking to the future what we need is a system of financial flows that is consistent with, and rewards, system-based working built around population health.

This needs to fully integrate parity of esteem between mental health and physical health, remembering that the Sustainability Funds go overwhelmingly to acute providers while the surpluses of the mental health sector are used to offset deficits elsewhere despite the concerns over access and quality in mental health.

It is one of the government tests for the 10-year plan that NHS organisations return to financial balance over the medium term.

Given how far away we are from a transparent, rules-based system that enables sound organisations (or areas) to reach financial balance it is encouraging that this is cast as ‘in the medium term’, which will be useful: some of the difficulties in local areas are so deep that it is unrealistic to expect them to turnaround quickly.

This means any 10-year plan has to include a financial reform plan that begins to set out the long-term strategy for money, as well as a practical operational route to get there.

Its encouraging that this need is clearly also recognised by senior leaders in the NHS.

This blog was first publish on The King’s Fund’s website. 

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