NHS finances on the brink

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Part of Is the NHS in crisis?

Is the spectre of an NHS – and Department of Health – overspend once again haunting the corridors of power?

It was not supposed to. Back in December 2015, NHS Planning Guidance established two firewalls to prevent this. The first was the £1.8 billion Sustainability and Transformation Fund (STF), which aimed to reduce the net NHS provider deficit to zero. The second was a 1 per cent topslice of NHS commissioner budgets, which created an £800 million contingency to be used to mop up any remaining overspends. Concern back then was less about 2016/17 and more about the years to follow when the growth in NHS spending was (and still is) expected to flatline.

However, both firewalls are looking shaky. On the provider side, the target net deficit has drifted up over the year, from £250 million at the time of the NHS financial reset to £580 million. We will find out the position at the end of Quarter 3 when NHS Improvement publishes its latest update next week, but their chief executive, Jim Mackey, has already confirmed that the £580 million target will not be met.

As bad as next week’s news may be, it may not tell the full story. It now matters exactly how much the forecast deficit has risen and how robust these forecasts are in the face of a very difficult January and February. The responses to our latest survey of NHS finance directors (carried out in late January and early February) make uncomfortable reading. They suggests that the forecast net deficit has risen by about 30 per cent since the autumn, when NHS Improvement’s Quarter 2 report showed a net deficit for the year of £669 million. Simply applying one number to the other would give a 2016/17 net provider deficit somewhere between the £820 million to £920 million mark.

Could the provider sector recover some ground at the end of the year? As the NHS struggles with its worst winter performance in over a decade, this is a big ask. Some trusts struggling to meet rising demand in A&E may well have been forced to draw on additional bank and agency staff. Others, in an attempt to hold down elective waiting lists, have outsourced work to the independent sector, a trend also picked up by the Financial Times. Spending on outsourcing was already forecast to rise from £241 million in 2015/16 to £349 million this year and may now drift higher. Acute providers are caught between a rock and a hard place: spend extra money on staff or on outsourcing, or sit back and watch A&E and 18-weeks waits get longer.

There is a risk that the rising provider deficit could overwhelm the second firewall: NHS Commissioners’ £800 million contingency. But is this contingency intact anyway? NHS England’s Quarter 3 financial update spoke of ‘up to an £800 million managed underspend’, which is very different from ‘at least an’ £800 million underspend. Caution in NHS England may be well placed. After all, clinical commissioning groups’ (CCGs) financial performance has deteriorated sharply, hitting a £437 million overspend in the first nine months of the year. Just like NHS providers, CCGs are forecasting that they will cut their overspend by the end of the year, but the same difficult winter may make this hard to achieve. However, it’s cheering to remember that commissioner underspends do have a habit of (unexpectedly) rising at the very end of the year, and perhaps history will repeat itself.

To be clear, any improvements in financial performance in NHS providers must not come at the expense of NHS commissioners, and vice versa. These just move deficits (or surpluses) from one side of the line to the other and do not help the net position.

There may be one last firewall back in the Department of Health itself. After all, the Department managed to absorb the considerably larger NHS provider deficit of 2015/16 (strictly speaking the Department did marginally overspend, but managed through a fortuitous oversight to avoid suffering the full constitutional consequences). As no-one thinks the net NHS deficit will be as big as last year’s, can the Department of Health once again come to the rescue? Don’t be too sure: the £1.8 billion STF came from them in the first place, thereby handing the NHS its deficit funding up front. If there is a remaining pile of cash sitting in the Department of Health it is likely to be a small one.

Which leaves us with the Chancellor, Philip Hammond. Unfortunately, the last HM Treasury supplementary estimate of the financial year (their last chance to re-set spending totals) was issued on 9 February. Even if the Chancellor wanted to pull the Department out of trouble (which is unlikely), any nasty surprises in NHS finances now may have simply come too late.

So once again everyone is watching the latest numbers coming out of the NHS, adding up the estimates and trying to balance the risks. It may seem surprising that we have ended up here given the combination of the STF, the £800 million and the undoubted efforts made right across the NHS to pull the deficits down and maintain performance. But perhaps it is not so surprising when we set all these efforts against the continued headwinds of rising demand across the service, rises in delayed transfers of care, staff shortages, and that we are now in the seventh year of the longest sustained spending slowdown in NHS history.

What happens if the Department of Health does indeed spend more money than our MPs voted for? Charles I tried something similar and the outcome (figuratively speaking) is likely to be the same: heads will roll.


Clive Hallam

Hallam Consultancy Ltd
Comment date
23 February 2017
Enjoyed reading the article and the comment by Dr Prabhu. I work in Public Health and we're all afflicted by the same issues and concerns, emanating from the NHS, local authority and CCGs. Fragmented care and commissioning does not work.
It is a constant concern as a commissioner to be faced with fractured structures that, rather than bringing efficiency, better practice and increased quality of patient contact, as they promise, offer up only the same sad merry-go-round, with everyone pointing fingers at everyone else.
As the doctor alludes to, there appears to be a top-down culture, which protects certain interests; does nothing for innovation, change or patient outcomes and seeks to blame rather than understand. Will that change? It would be nice to think so, but is anyone brave enough to challenge the status quo?
500 years ago, Machiavelli commented that innovators often fail because they challenge those who are frightened of change, and are not supported enough by those who would embrace it, if they weren't too afraid of those who hate it. It is these innovators who decide "enough is enough" and leave.
I've only ever worked in substance misuse treatment, an area also beset by a desire for status quo. During my career, I've met people from within the NHS, and general practice; voluntary sector and patient groups - there are many good people out there who could help resolve these issues. We need new ideas. Doing the same thing, even with a different name, over and over again and expecting a different result is still a good definition of madness.
There isn't one single answer, nor one single direction forward, but there are plenty of people willing to get their hands dirty to help make the NHS what it should be.

ali twaij

Data Analyst,
Heaven seeker ltd
Comment date
20 February 2017
Very interesting comments Dr Umesh Prabhu. But all that seems to have been happening is retransforming. Doesnt seem to have done much. Infact may have made things worse. But i do agree about having courageous leaders but under capitalism such people are not part of the fruit.
Best wishes

Dayle Rodriguez

UK Manager,
Comment date
20 February 2017
@ Dr Prabhu, this is a very insightful comment and I agree, the NHS needs to be transformed! As a start-up company, Sentab, we believe that our product could have a monumental positive impact on the NHS but, as you have mentioned, the risk averse bureaucracy is inhibiting the change that the NHS requires.

Dr Umesh Prabhu

Patient Safety Champion and Proud of NHS,
Comment date
18 February 2017
Finances will be a problem in NHS unless we transform the NHS!

NHS is a great Institution and probably one of the safest Institution. Each year 360 million patients are seen by 1.3 Million staff and vast majority patients do receive the best care. However, each year approximately 75,000 patients suffer moderate to severe harm due to 'medical errors' and vast majority of them are preventable!

Over the last 10 years or so, NHS has been given lots of money to get the waiting list down and also to improve patient safety and rightly so. But sad reality is that all these reforms have put staff, managers, the Boards, CCGs and GPs under huge pressure.

NHS has become risk averse, too much bureaucracy has been set in. Workforce planning has been diabolical and NHS works in silos. There is too much hotchpotch regulation, blame culture is rife and there is culture of bullying, harassment, victimisation, racism, subconscious bias and so on. Locally there is poor governance and accountability to many managers and clinical staff who bully staff or provide poor care or create corrosive energy. In such a culture staff suffer and patients suffer and cover up goes on.

Many doctors and clinical staff are fed up and become completely demoralised and dis-engaged. Staff engagement is poor in many Trusts and CCGs.

CQC inspection has put tremendous pressure on staff, managers and the Boards.

Of course, patient safety, regulation are all important but sad reality is only clinical staff are held to account where as managers and leaders who create a culture of bullying, harassment and victimisation move from one organisation to another without any accountability!

If we all work together we can make NHS safest and the best and save billions of pounds which can be re-invested in Primary care, Mental health, dementia, social care, elderly care, Public health, Good IT, digital heath and so on.

NHS and Social care must be reformed together. NHS must appoint value based leaders from top to bottom with clear lines of accountability for leaders as well as clinical staff. NHS culture of bullying, harassment, victimisation and racism must be addressed and there must be clear governance and accountability for all staff including managers and leaders.

NHS needs less but effective leaders who are kind, caring, compassionate but have the courage to do the right things right and completely transform both the health and social care. Sadly in our NHS there is acute shortage of such brave, courageous and trans-formational leaders.

Sad to see many good leaders retiring from NHS. Here are some simple things NHS can should do transform NHS and social care and to save millions of pounds to re-invest.

1. Appoint leaders for their values, leadership skills along with technical skills
2. Have more clinical staff on the Board.
3. Promote culture of patient safety and staff happiness and staff well-being
4. Reduce the burden of regulation, inspection but there must be effective regulation and regulate both clinical and non-clinical staff and that too managers and leader must be held to account
5. Robust governance and accountability locally and nationally
6. Transfrom both health and social care together.
7. More staff, patient and public engagement
8. Avoid wastage by excellent staff engagement, reducing number of Trusts and CCGs and service transformation
9. Remove the culture of naming, shaming, discipline, harassment and victimisation by holding the Boards to account for culture and leadership
10. Address Work Force Race Equality right.

Sad reality is multi-cultural Britain has Uni-cultural leadership and BME staff and people of this nation feel completely excluded and do not feel a part of the NHS or part of this great nation!

I have written these comments not as Medical Director or in any of my other roles but as someone who deeply cares for NHS, patient safety, staff well-being and someone who has seen too many human tragedies in our kind, caring and compassionate NHS!

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