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Financial failure in the NHS

What causes it and how best to manage it

This report describes the current financial state of the NHS and the reasons for the deterioration in financial performance and ultimately financial failure. These include weak leadership, legacy costs, PbR, and the impact of the wider health economy.

It considers the challenge of the conflict between quality of care and financial balance and sets out the approaches used to avert financial failure and to deal with it once it occurs. The role of ‘bail-outs’, loans, Public Dividend Capital, increased tariffs, whole health economy solutions, mergers and the importance of leadership are all considered. The report then sets out some recommendations for the future.

Key findings

  • Even the best managed organisations face a financial struggle in the current climate.

  • The balancing act between finance and performance cannot be maintained.

  • There are many factors that contribute to financial failure and some of these are not under the control of one organisation.

  • There is a lack of leadership within local health economies following the abolition of strategic health authorities.

  • National bodies need to agree a shared approach to dealing with funding challenges.

Policy implications

  • The constituent parts of the local health economy need to be defined as the landscape shifts.

  • One size does not fit all – the government needs to distinguish between struggling organisations that are financially sustainable in the long term, and those that are not.

  • The NHS needs a more sophisticated approach to finance so that it can clearly separate 'emergency' finance from supporting investment.

  • Strategic leadership at local level must be created.

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