10 quick reflections on the Q3 and vacancy figures

Adam Wright profile picture

23 February 2018

Adam Wright
Policy Officer - Finances


NHS Improvement has published quarter three (Q3) financial, performance and workforce data for the NHS provider sector. We also now have the financial outlook for the provider sector for the first nine months of the year including, crucially, the first month of winter. Despite enormous effort from trusts in the face of unprecedented levels of demand, the combined forecast end of year deficit has grown to £931m, £140m above last year but still well below the 2015/16 headline position. We offer 10 reflections on where this now leaves the provider sector.

  1. The provider deficit is increasing: the deficit for the entire sector stands at £1.28bn at the end of December, £365m over the planned position. Just under 60% of providers reported a deficit. Based on this performance, the sector is now forecast to record a deficit of £931m at year end. That's a deterioration of over £300m compared to the position reported three months earlier in the quarter two (Q2) report. Set against a CCG overspend of £471m at the end of December, the NHS is potentially facing a very real problem at year end about whether it can stay within its budget in 2018/19.
  2. But this doesn't tell the whole story: The headline figures only tell part of the story. Within the financial positions reported at Q3, trusts included £569m in sustainability funding, which means that when you also exclude other non-recurrent measures, the deficit would stand at around £2.45bn. However this figure still includes around 70% of the £337m given to the NHS in the November 2017 budget, which suggests that yesterday's figures would have looked even worse without that in-year winter funding.
  3. Winter pressures begin to bite: A&E attendances rose by just under 5% compared to the same period last year, and emergency admissions are also up by just over 5%. This means that so far this year 430,000 more patients came to A&E compared to last year. If you look at December alone, there was a 6% rise year on year in emergency admissions which gives a sense of the scale of pressure and demand trusts have been responding to. It's important to remember here that if a trust struggles to meet their A&E performance target it will also fail to unlock the 30% performance element of the STF.
  4. All this has led to a financial triple whammy: Trust have received less than full funding for more emergency admissions (due to the marginal rate emergency admissions which has already taken £232m out of the sector), have faced higher costs than planned to meet the extra demand (staff expenditure alone was £701m over plan by December), and lost income from cancelled operations (planned income for elective work is £174m less than plan). We know from winter performance so far for January and February that demand has been incredibly high across the NHS. December's figures might only be the tip of the iceberg.
  5. Cost improvement plans (CIPs) have been very ambitious: Trusts have been expected to make almost £4bn worth of efficiency savings this year – or 4.3% of total spend. This was always going to be a tough ask, and it should be no surprise, despite relentless work from dedicated staff, that trusts are over £300m behind plan. This is because there are fewer opportunities for efficiencies, particularly in terms of recurrent savings. Despite this slippage, NHS trusts have still managed to reduce total operating costs by over £2bn. In fact trusts have generated 1.8% worth of productivity gains, which is nine times more than the UK whole economy.
  6. The workforce challenge: For the first time NHS Improvement has published vacancy data as part of the quarterly performance reporting. This transparency is welcome, but with it comes an indication of the scale of the workforce challenge. NHS trusts have just under 100,000 vacancies (a rate of 8.4%) across the workforce, 36,000 of which are for nursing alone. Workforce costs are understandably driving some of the deterioration in financial plans. This is not because trusts are not continuing to make good progress reducing agency spend – they reduced this by 20% compared to the same period last year. The data shows there are widespread supply side issues – the new draft workforce strategy is a welcome step in the right direction to tackle this but does not address the very real immediate  challenges facing trusts to ensure they have enough staff.
  7. Once you're in trouble it's tough to turn it around: The quarterly report stresses that around 20 trusts (9% of the sector) reported an adverse variance of over £10m by the end of December. But we must not lose sight of the systematic financial challenges facing trusts which manifest themselves in different ways.  It's also important to remember that the odds are stacked against trusts experiencing financial difficulties. Firstly, it is unlikely they will receive any STF to support their bottom line, whether they weren't in a position to sign up to a control total in the first place or have not been able to meet the trajectory to unlock the sustainability funding. Secondly, trusts in financial special measures are subject to interest rates of 6% for Department of Health and Social Care (DHSC) loans, rather than the 1.5% or 3.5% rates normally levied. We need to find a way to support the most challenged providers in the current context, whatever the local issues or challenges are they face. We also need to remember that trust performance can rarely be viewed in isolation from the wider system; if we are to move towards joint working we need to take a more holistic approach to measuring and penalising poor financial performance.
  8. The 2017/18 finish line: Over £600m of STF is still sitting unallocated within the overall sector position; that is, funding which will need to reach the sector through the incentive and bonus scheme. This is £245m higher than this point last year, which means the way the money will be allocated will be crucial. There is a very real danger, unless the funding is administered in a proportionate way that an even greater proportion of the STF will be concentrated in even fewer providers.
  9. Looking to next year: 2018/19 financial plans need to reflect the true year end position of trusts, recognising a higher deficit is still likely. With the deterioration we have seen between quarter 1 and quarter 3 of this year, and with the full impact of winter pressures still to bite provider finances, we are potentially looking at a deficit in excess of £1bn by the end of the year. The proposal in the planning guidance for the sector to get to a breakeven position next year looks even more in doubtful, based on the current trajectory. On top of this, A&E performance remains stubbornly under the 90% recovery trajectory for four hour performance. The planning guidance pushed the trajectory back one year, but if demand continues to grow at the levels seen so far this recovery must be properly funded.
  10. Beyond 2018/19: The Q3 figures show how the NHS and its staff are being pushed to the limit. Trusts simply cannot close the gap between what they are being asked to deliver and the funding available. A clear statement of intent and a plan to address the long term funding of health and social care is needed, without delay.

 

This article was first published by HSJ on 23 February 2018.

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Adam Wright profile picture

Adam Wright
Policy Officer - Finances
@adamwrite

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