These are strange days when it comes to health and care policy.
Compared to the recent past, it is a time of relative plenty and certainty. A five-year funding deal and long-term plan have reintroduced some strategic direction and much-needed resource to certain parts of the NHS, after the decade-long wilderness years of transition and relative austerity .
The NHS now has a clearer focus on developing joined-up systems of care through integrated care. The mechanisms (or ‘support chassis’…) for this are integrated care systems and primary care networks. And there is the potential of legislative changes on the horizon to hardwire this new way of working into how the NHS operates.
But speak to local leaders in health and social care and a sense of pessimism and uncertainty abounds. Even if it is a time of (relative) plenty for NHS funding, this is certainly not the case when it comes to the supply of clinical staff or investment in the vital health and care budgets that lie outside the NHS ringfence.
The entwined issues of Brexit and the race for a new Prime Minister are also immobilising health and care strategy. It is now likely that the national strategic paralysis will delay a long-term and comprehensive Spending Review. And this will have serious consequences for wider services, such as adult social care and public health, and delays to the final NHS People Plan.
So, in this QMR we once again look to our survey of NHS finance directors to understand how local leaders are making sense of this rapidly changing policy environment.
This edition of the QMR is structured in three sections, focusing on: the current reality local leaders are facing as 2018/19 outturn numbers emerge; their views on what the rest of 2019/20 might bring; and a look into the medium term of what health and care services can expect over the next five years.
1. A reality check at the end of 2018/19
Given the mercurial planning environment in the NHS, it seems almost unfair to go back to the NHS planning guidance for 2018/19. But as a reminder, some of the key ambitions the national bodies set at the start of last year were:
- all clinical commissioning groups (CCGs) to financially balance with zero deficits, and the provider trust deficit to be contained to £519 million
- the majority of providers to meet the ‘95 per cent of patients treated within four hours’ accident and emergency (A&E) standard by March 2019, with national performance returning to 95 per cent ‘over the course of 2019’
- a reduction in the proportion of beds occupied by patients with delayed discharges to 3.5 per cent
- providers to maintain or reduce the number of patients on planned care (referral-to-treatment) waiting lists in March 2019, compared to March 2018; and to halve the number of patients waiting more than a year for care.
So how did the NHS do? Some of these commitments were met. For example, the number of patients waiting more than a year for planned care was more than halved from 2,756 people in March 2018 to just over 1,000 people by March 2019.
But while this accomplishment reflects both progress and the hard work of staff, this is still 1,000 people too many – especially when the NHS has been asked to have zero tolerance of such long waits. The NHS was also far less successful in meeting its other main planned care target: rather than holding steady, the overall size of the waiting list rose by 5 per cent to well over 4 million people.
And the disappointment extends to A&E performance. There are still seven months left for the NHS to reach the 95 per cent standard in 2019, but the omens are not good. The latest data for May 2019 show only 7 of 119 trusts with major A&E departments met the four-hour standard, and national performance remained stubbornly low with only 86.6 per cent of patients seen within four hours (Figure 1) – a figure propped up by continued strong waiting-time performance in walk-in centres and minor injury units.
If performance is this challenged over the summer, it is hard to see how the NHS will meet the required standard at all this year – especially if the worryingly high levels of flu activity in the Antipodes are a preview of the pressures that might hit the NHS in winter.
There is a long history of NHS planning guidance documents setting ‘ambitious but challenging targets’. There is an equally long history that suggests these targets are often both unrealistic and undeliverable. Setting targets that cannot be achieved is not helpful to anyone – and it must be hoped this realisation is reflected in the next set of planning guidance documents that are currently being written.
The reasons for this challenged waiting-time performance are unsurprising. The demand for emergency services continues unabated, with emergency admissions to hospital relentlessly ratcheting up year after year.
Rising demand is not necessarily an operational problem if you are able to increase staff, open new wards, reduce length of stay or invest in out-of-hospital services as needed. But that is clearly not a reflection of where the NHS is at the moment, with nearly 40,000 vacant nursing posts and more than 9,000 vacant medical posts in England and bed occupancy levels far above the recommended level. In this QMR, bed occupancy displaced staff morale as the top concern of trust finance leaders (Figure 2) – a concern Simon Stevens reflected in his recent speech to the NHS Confederation.
Turning to finances we find a more convoluted narrative for 2018/19. The original plan was for NHS trusts to reduce their aggregate deficit to £519 million in 2018/19. But by September 2018, NHS Improvement had decided this level of deficit was ‘unaffordable’ and by ‘identifying further opportunities for improvement in some organisations’, brought the planned deficit down to £439 million. In December 2018, this plan was then brought down once more (through even more improvement) to a new target of a £394 million deficit.
Unfortunately, the final outturn position blew past all these estimates, with providers overspending £571 million by the end of 2018/19 (see Figure 3). And on the commissioning side, the original plan for all CCGs to financially balance with zero deficits in 2018/19 was not met either. At the end of 2018/19, 33 CCGs ended the year with overspends, and CCGs in aggregate overspent by £155 million.
The provider and CCG financial performance in 2018/19 was then both unexpectedly poor and – in the end – unexpectedly affordable. Because the overall financial position for NHS commissioners – once underspends in NHS England’s own budgets and commissioning spending are included was sufficient to once again offset deficits on the provider side (see Figure 4).
Achieving financial balance at the overall NHS level is nothing to be sniffed at, but when that financial balance continues to be based on one-off actions, and when it comes at the cost of investment in transforming services, it becomes harder to determine whether financial balance is really worth the cost.
And even if the national financial position has been balanced once more in 2018/19, this raises two issues. First, what happens in 2019/20? The NHS planning guidance for this year states ‘no national reserves are being held to cover unauthorised deficits, so each NHS organisation in 2019/20 must deliver its agreed financial position…’. If history is any guide, this ambition will not be realised, which suggests some central reserves will still have to be found in-year if the NHS as a whole is to balance its books.
Second, financial balance at the national level masks some rolling waters underneath. Figure 5 below shows just how volatile individual provider finances were over 2018/19 with some particularly striking variances to plans.
This volatility in financial performance is not news. But the distribution of billions of pounds of sustainability funding over the past few years has amplified – rather than dampened – the volatility in provider finances. NHS England and NHS Improvement have said that 2019/20 will be the first year of a reset in NHS financial management, with financial control totals removed from 2020/21.
This will be no mean feat as in a relatively short space of time, the huge swathes of sustainability funding that currently sit outside the normal funding channels will somehow need to be rewired in the NHS allocation and payment system.
We end this section where it began – with the 2018/19 planning guidance. The guidance noted that ‘the delivery of plans in 2018/19 is an essential foundation for the longer-term sustainability of services … Any shortfall in delivery during 2018/19 would have significant implications for the following year.’ At the start of 2018/19, this could be read as imploring providers and CCGs to redouble their efforts. At the end of 2018/19, it reads as an ominous portent of things to come.
2. What does the rest of 2019/20 hold?
You might expect finance directors to be in an optimistic mood in 2019/20. This, after all, is the first of several years of funding growth, following the longest funding squeeze in NHS history. But in fact finance leads are more circumspect about their prospects in 2019/20 – and with good reason.
Just over a quarter of trusts we surveyed were expecting to be in deficit by the end of 2019/20 (see Figure 6). This would still be a substantial improvement on 2018/19, when 47 per cent of trusts were in deficit. And it would also put the NHS within touching distance of the NHS England and NHS Improvement’s target to halve the number of trusts reporting a deficit in 2019/20.
But even trusts who are expecting to break even or be in surplus over 2019/20 were cautious. In part this is because these trusts will remain hugely dependent on central financial support (see Figure 7). This support will be unlocked by trusts achieving their financial control totals – a task that may prove harder this year because income from selling land and assets will not be recognised in the same way as in previous years.
Providers were also cautious for the same reasons that have bedevilled financial planning in the NHS for years. These include doubts over whether ambitious cost improvement plans can be delivered (in 2018/19 only 71 per cent of planned recurrent savings were actually delivered) and whether trusts and CCGs can reach agreement by the end of the year on contract income that, for now, remains in dispute.
And a final note of caution came from trusts with community services that are dependent on income from local authorities – which under current spending plans are still unprotected compared to NHS budgets. For these trusts, the five-year NHS funding deal emphatically does not represent a time of plenty. Finance leads in our survey highlighted the impact of cuts to council budgets on their income for public health services, with entire contracts at risk in some cases, and a clear knock-on impact for access and quality of care for the services they provide. As one NHS finance lead, who had seen their public health contracts more than halve since 2013/14, said: ‘this means reductions in health visiting, school nursing, no family nurse partnership service, no substance misuse community service, cuts in oral health promotion – all this in [a city] which has one of the highest deprivation levels and numbers of young people.’ (NHS trust finance director)
For a combination of these reasons then, more than 70 per cent of provider trusts we surveyed were pessimistic about the financial health of their local economies over the next 12 months (see Figure 8). This is a far higher degree of pessimism when compared to their own organisation’s financial performance (Figure 6), perhaps reflecting the wider pressures on primary care, social care and public health services.
If 2019/20 is the first year of a financial reset, a reset (of sorts) is also planned for NHS performance. The Powis review of clinical standards is currently under way and may result in changes to national performance targets for A&E, referral-to-treatment, mental health and cancer.
Given the totemic nature of these access standards, it is surprising how little attention the review has received. For this reason, we asked finance directors for their views on the proposed changes to the four-hour A&E standard. From the responses we received, the jury is still out.
There was clear support for introducing new measures of how long patients wait in A&E before being clinically assessed or receiving treatment. But finance directors were more equivocal on whether replacing the current four-hour standard with a new ‘average time in A&E’ measure would be an improvement over the existing regime (see Figure 9).
As we have noted elsewhere, it is right to review whether key NHS targets are fit for purpose. But the new definitions of waiting times that have been proposed are not simply a promise of faster care – and hence are not obviously better (or obviously worse) than the targets that are currently in place.
Given this concern, more effort should be made to ensure the review of standards has sufficient time to pilot these proposals; to fully engage patients, clinicians, managers and the public; and to share their findings as openly and transparently as possible. The current timetable for the review leaves precious little opportunity for this to happen.
3. Looking further ahead over the next five years
Financial targets – the quid pro quo
If the future of financial and operational performance is uncertain even within 2019/20, what hope of accurate predictions for the years ahead? With Brexit and a new Prime Minister (and potentially Health Secretary) on the horizon, there is much that remains uncertain. But at the same time, the NHS has been given (and accepted) very concrete commitments in return for the five-year funding deal from 2019/20 to 2023/24.
Perhaps the most eye-catching of these commitments (for finance directors at least) were around financial recovery in the NHS. Unfortunately, the pessimism around these targets is equally eye-catching: 80 per cent of the finance directors we surveyed thought it unlikely that the provider sector will meet nationally set targets to financially balance in 2020/21 or that all NHS organisations will balance in 2023/24 (see Figure 10).
The reasons for this pessimism were characterised by two themes. First, there was a recognition that delivering financial balance in the medium term can only be sustainably achieved by developing new ways of delivering care, rather than simply delivering the existing model of care more efficiently. Here, provider trusts reiterated that the new funding deal is not a bonanza and there is a risk that the funding growth is eaten up by tackling financial deficits, pay awards and demand growth, rather than being used to fund transformation in how services are delivered over the next five years.
And second, the pessimism reflected the fact that a new NHS funding deal alone is not sufficient to deliver financial balance. Staffing costs account for the majority of health care spending, and the NHS is part of an interconnected system of public services. So the continued workforce shortages and underinvestment in wider capital, social care and public health budgets will all limit the rate at which financial performance in the NHS can improve.
It is unsurprising then that finance directors would give all of these budgets a high priority in the forthcoming Spending Review (even if the spending review is now perhaps less forthcoming than originally thought). While adult social care was top of the pile of priorities, the responses of finance directors illustrated the importance of all the unprotected areas of health and care spending (see Figure 11). For example, finance leads highlighted how underinvestment in capital spending for IT, equipment and facilities has led to deteriorating performance, efficiency and staff morale.
There has been an unhelpful tendency in recent years to redefine ‘health spending’ as being just NHS England’s budget (or more recently, funding covered by the NHS England mandate) rather than the total Department of Health and Social Care budget, and to protect health spending without due regard to social care and public health budgets. The costs of this short-sighted strategy are now painfully clear.
As you would expect, finance directors are aware of the bottom line and recognise the reality of constrained public finances. As one finance lead said: ‘all of these services interconnect, so it is crazy to exclude them ... but there isn't enough money, and if my priorities got funded ... something else equally important won't be.’
But as the financial stewards of their organisations and systems, they gave an overriding sense that underinvestment and cuts to wider budgets have run too deep and for too long. It is hard to see how the NHS will have a fighting chance of meeting any operational and performance commitments until these wider budgets are protected.
A reduction in outpatient visits
The financial commitments in the NHS long-term plan were not the only things to catch the eye. The plan also commits to redesign services over the next five years to avoid up to a third of face-to-face outpatient visits.
Few would argue with the contention that NHS outpatient services should be reformed. But there are concerns that the favoured twins of modern health care policy – ‘pace’ and ‘scale’ – have been set at overly optimistic levels here. Half of finance directors were somewhat confident that outpatient numbers could be reduced at the level envisaged by the plan, with the remaining finance leads having little or no confidence (see Figure 12).
The lack of confidence stemmed from three issues. First, there is a lack of capital funding (and associated revenue) to invest in the digital technology that could enable remote consultations to replace physical outpatient appointments. Second, there is a concern that, although reducing outpatient numbers will improve patient care and convenience, this will not necessarily reduce costs to the NHS (an implicit goal of the new NHS target) unless this results in reduced staffing or estate costs. And third, the gradual culture change involved in unwinding decades of clinical practice and financial incentives to increase outpatient activity should not be underestimated. As one finance director said of the outpatients’ ambition: ‘we haven't got plans of how this can be achieved yet...the announcement has been made before we've worked out how to do it.’
The system and the organisation
The final area of our finance directors survey also concerns the future. In one of his early interviews as chief executive of NHS England, Simon Stevens said: ‘Our future lies in networks and health systems, not individual go-it-alone institutions.’
Since then, parts of the NHS have ticked up through the gears of system working. This has involved planning as a system (through sustainability and transformation plans), acting as a system (through sustainability and transformation partnerships) and eventually being contracted to deliver care as a system (through integrated care systems and primary care networks).
In practice, the relative priorities of the organisation and the wider health and care system have never been satisfactorily aligned. When asked whether the financial position of their organisation trumped the system (or vice versa), the majority (60 per cent) of finance directors said both were important. Only 9 per cent thought their system’s financial performance was more important, with 31 per cent saying their organisational finances were more important (Figure 13).
Unsurprisingly, this question elicited the most write-in comments from finance directors. And these responses fell into three broad buckets.
The first of these buckets would be labelled ‘This is a stupid question’. For these finance directors the choice was a false one, because the performance of a system would only be as good as the performance of its constituent organisations. One respondent commented this was a ‘silly question … if each part succeeds the system succeeds.’
The second captured finance directors who thought a change in approach from regulators is needed before system working can be truly embedded: because incentives are not aligned to support system finances, they are still payable on organisational performance. The system can miss completely but I might still get paid. Or more bluntly: ‘Until legislative changes are made, statutory obligation must come first.’
And the third bucket was a nuanced reminder that system working is not a substitute for financial discipline and focus at the organisational level. This included one finance lead who noted their organisation was in such a difficult financial position that they could not begin to consider the wider system until their organisation was under control. For another finance lead, they promoted the concept of ‘one system, one budget’ while still focusing on the management of costs and desire for efficiency in each part of that system – including their own organisation.
If we had run this survey ten years ago, I suspect the result would have been very different, with a majority of providers clearly prioritising their organisational finances over the system (with much debate over exactly which ‘system’ we were talking about). The focus on both organisational and system performance can be seen as progress towards Simon Steven’s vision.
But, in some parts of the country at least, it is hard to see how the financial performance of the system and the organisation can be given equal priority. As the National Audit Office (NAO) has reported, three-quarters of sustainability and transformation partnerships have a deficit when the finances of their trusts and CCGs are added together. In some of these areas, services (and their associated income and costs) will need to shift across a local area to improve either the quality or sustainability of services for the system as a whole. And this will inevitably lead to winners and losers at the organisational level, and some tough decisions for the boards of these organisations who still clearly feel pulled in multiple directions.
I have a few friends and colleagues who lost their jobs because of the financial performance of their organisation. I don’t yet know anyone who was asked to leave because they didn’t do their bit for the financial performance of the system. A dissonance then remains in health care policy, because it still, strangely, seems that to follow the vision of the chief executive of the NHS would be a courageous decision.
So then, where does this review of the immediate past, present and future of financial and operational performance leave us?
In a familiar place, perhaps. Casting our minds back (for the final time) to the 2018/19 planning guidance, the NHS was given three priorities: to improve the quality of care, maintain financial balance, and work in partnership to make services sustainable. It is hard to argue with these priorities, but the evidence of the past year and the results of our survey suggest that some of these priorities will remain aspirational.
And if we cast our minds back four or five years, a sense of familiarity still pervades. 2019/20 finds the NHS sitting in the shadow of a government leadership contest and an upcoming Spending Review and in the first year of a new funding settlement and five-year plan to transform how services are delivered.
The terminology may have changed since 2015/16 from ‘primary and acute care systems’ (PACS) and ‘multispecialty community providers’ (MCPs) to ‘integrated care systems’ (ICSs) and ‘primary care networks’ (PCNs). And the current ‘financial reset’ may concern the removal, rather than introduction, of control totals. But the underlying financial, staffing and performance challenges facing health and care services continue.
What can sometimes get lost in the technocracy of funding flows and waiting time targets is the focus on patients and the public – though the deep concerns here were writ large in the comments of finance directors in our survey. If the past five years have taught us anything, it’s that we have at least one constant amid all this change: the fact that the job of a local leader in health and care – rewarding as it may be – is only getting more difficult and more complex.
Annex 1. Managing NHS finances and performance in 2018/19 and 2019/20
Central sustainability funding
2018/19 brought two changes to national management of provider and commissioner finances. First, the Sustainability and Transformation Fund, which was available in 2016/17 and 2017/18, was replaced by a Provider Sustainability Fund (PSF). Second, a Commissioner Sustainability Fund (CSF) was created to mirror the financial framework for providers.
The rules for accessing these fund monies are broadly similar to those for the sustainability and transforming funding they replaced, ie, individual providers or CCGs are set financial targets (control totals) at the start of the year and receive funding if they accept and meet these targets and their associated conditions. This funding helps to improve the reported income and expenditure position of organisations but is not intended to be a source of funding for additional investment in local health economies.
In 2018/19, NHS England and NHS Improvement placed £2.45 billion into the PSF, which is £650 million greater than the £1.8 billion Sustainability and Transformation Fund that predated it.
Funding from the PSF was paid out to organisations, mainly acute trusts, that agreed to their nationally set ‘control total’ (financial target). As in 2017/18, 30 per cent of the total £2.45 billion was linked to A&E performance, with the rest being paid based on achievement of financial targets.
Providers who accepted their financial control totals were exempt from some contract performance sanctions, such as fines for missing waiting time targets. Providers who rejected their control totals were ineligible for central sustainability funding and any discretionary access to capital allocation.
For CCGs, a new £400 million Commissioner Sustainability Fund was created to mirror the financial framework for providers and fund in-year CCG deficits in 2018/19. CCGs with a deficit control total were eligible for funding, at a level to bring the CCG back to in-year financial balance.
NHS England and NHS Improvement have said 2019/20 is the first year of a reset of the NHS financial framework. And this year brought further changes to the financial management of NHS organisations.
As part of this reset, £1 billion was transferred out of the PSF and into the national payment system for urgent and emergency care services. A further £200 million was transferred to part fund a new financial recovery fund. The combination of these two changes reduces the value of the PSF from its £2.45 billion level in 2018/19, to £1.25 billion in 2019/20.
In the past, PSF monies could be accessed by trusts planning a surplus, breakeven or deficit. The new £1.05 billion financial recovery fund is more targeted, to support the financial sustainability of trusts in financial deficit who agreed to their control totals in 2019/20. NHS England and NHS Improvement have said their ambition is that the financial recovery fund will mean the end of the control total regime and associated PSF for all trusts from 2020/21.
The CSF remained in place in 2019/20 to support CCGs that would otherwise be in financial deficit. But NHS England reduced the size of the monies from £400 million in 2018/19 to £300 million in 2019/20, to reflect the growth in CCG allocations as the new five-year NHS funding deal began.
System control totals
Alongside financial control totals for providers and commissioners, in 2019/20 each STP and ICS was set a system control total. These represent the sum of the control totals for individual organisations in that patch. Systems can then apply to their regional NHS England and NHS Improvement directors to amend control totals for individual organisations, as long as these changes are net-neutral at the system level and agreed by all parties.
National performance targets
Two of the highest profile NHS targets are for emergency care and planned elective care: the four-hour A&E and the 18-week referral-to-treatment standards. These are a target that 95 per cent of patients will be admitted, transferred or discharged within four hours of arriving at an A&E department, and a target that 92 per cent of patients should wait no more than 18 weeks for planned elective treatment after a referral for consultant-led care.
In 2018/19, NHS England and NHS Improvement had three expectations for the A&E standard: that national performance is above 90 per cent for the month of September 2018; that the majority of providers are achieving the 95 per cent standard for the month of March 2019; and that the NHS returns to 95 per cent overall performance within the course of 2019.
For referral-to-treatment standards, NHS providers were asked to plan for two national expectations. First, that their referral-to-treatment waiting list – measured as the number of patients on an incomplete pathway (ie, those people still waiting for care) would be no higher in March 2019 than it was in March 2018. Second, that the number of patients waiting more than 52 weeks for treatment should be halved by March 2019, and eliminated locally where possible. The 2018/19 planning guidance did not explicitly mention the 18-week standard itself.
In 2018, Professor Stephen Powis, NHS England National Medical Director, was asked to carry out a clinical review of access standards across the NHS (the Clinical Standards Review). The interim report of this review was published in March 2019 and proposed several changes to key access standards, including the A&E and referral-to-treatment targets.
The 2019/20 planning guidance notes that the existing access standards remain in force until any new standards from the Clinical Standards Review are implemented nationally. The guidance does not state whether NHS England and NHS Improvement still expect A&E performance to return to the 95 per cent standard within the course of 2019.
For referral-to-treatment, the 2019/20 planning guidance is more explicit that in 2019/20 NHS providers are expected to reduce their waiting lists over the year (though again, no explicit reference is made to the 18-week target); no patient should wait more than 52 weeks for treatment; and every patient waiting six months or longer for care should be contacted and offered the option of care at an alternative provider.
The suite of access standards proposed in the interim Clinical Standards Review document are currently being piloted in a small number of NHS trusts. NHS England says that where appropriate, some of these standards will be rolled out nationally from Autumn 2019, with final recommendations published in spring 2020.
Meeting finance and performance targets
If organisations fail to meet the finance and performance requirements that underpin their control totals, access to all or some of their planned payments from the sustainability funds can be withheld.
While withholding funding will increase deficits reported by individual organisations, it will not alter the net overall NHS position, as the sustainability funds will be underspent by the equivalent amount.
If a provider cannot pay its bills – such as salaries for its staff – without sustainability fund support, it may need to turn instead to the Department of Health and Social Care for additional cash support, usually provided as an interest-bearing loan.
Annex 2. About the QMR
This report details the results of an online survey of NHS trust finance directors carried out 29 April–24 May 2019.
We contacted 230 NHS trust finance directors and received responses from 59 (26 per cent).
In addition, we contacted approximately 140 clinical commissioning group (CCG) finance leads, and 16 responded. Due to this low sample size, results have not been reported for CCGs in this edition of the QMR.