Commitment to future Sustainability and Transformation Funding crucial to protect progress on clearing provider sector debts.

Tim Connolly profile picture

03 October 2017

Tim Connolly
Policy advisor - finances


Ahead of the Autumn Budget, the health service will be once again looking for clues as to whether it will benefit from an increase in funding as the government sets out its spending plans for the next year.

At the Department of Health and its arms-length bodies, considerable attention will have been given to NHS trust finances, and more precisely, how to continue making firm progress towards the goal of bringing the provider sector back into financial balance in the face of relentless demand, cost pressures and workforce shortages.

However, a new report from NHS Providers - Recovering Provider Deficits: Has it Worked and at What Cost? shows that untangling the thorny knot of trust finances has no straightforward solution, and that there is uncertainty among trusts about what a future mechanism should look like given that sustainability funding is due to run out at the end of 2018/19.

There is uncertainty among trusts about what a future mechanism should look like given that sustainability funding is due to run out at the end of 2018/19.

Tim Connolly    Policy Advisor - Finances

We surveyed NHS trusts to get an accurate picture of the situation on the frontline, receiving responses from the chief executive or finance director of 109 trusts.

 

How did we get here?

The provider sector ended 2015/16 an eye-watering £2.45bn in deficit. Control totals were introduced to provide an improvement in the financial positions of trusts, and the provider sector broadly accepted the need for a temporary mechanism to that end. Trusts were asked to sign up to a control total, setting a financial target they had to hit.

Critically, access to the £1.8 billion of the Sustainability and Transformation Fund (STF) was made contingent on trusts signing up to - and delivering - their financial control total, as well as delivering performance improvements.

But the level of savings required for trusts to deliver their control totals has led to a reliance on non-recurrent savings – including land sales and accounting adjustments. These one-off savings are unsustainable in the longer term and do nothing to address the underlying financial sustainability of the sector.

These one-off savings are unsustainable in the longer term and do nothing to address the underlying financial sustainability of the sector.

Tim Connolly    Policy Advisor - Finances

A recent analysis by the Nuffield Trust has shown that the real figure representing the underlying provider sector debt is £3.7bn. We can’t keep pretending that the NHS can continue to hit savings targets relying on recurrent savings that no other Western healthcare system has ever consistently realised.

 

What have control totals achieved?

As a result of a substantial amount of hard work across the NHS, the provider sector deficit was reduced to £791m this year, a £1.7bn improvement since 2015/16. This represents an almost pound for pound benefit for the investment. Put simply, it is difficult to imagine this improvement being made without the introduction of control totals and the award of STF funding.

However, this funding has now become integral to the sector. The genuine progress made by the sector to control runaway deficits could be put at risk if the funding is not protected beyond its original three year commitment.

The genuine progress made by the sector to control runaway deficits could be put at risk if the funding is not protected beyond its original three year commitment.

Tim Connolly    Policy Advisor - Finances


More broadly, the majority (54%) of recipients to our survey believed control totals have improved the overall financial management of the provider sector, while 52% believed it had improved their focus on driving savings. Although, this has come at the cost of autonomy with 36% of respondents saying that imposed control totals have diminished their sense of ownership over their saving plans.

Trusts were also concerned that because the government only offered access to the STF to those trusts who were able to deliver their control totals, those most in need of help were effectively being penalised. 

For example, trusts that outperformed their control total were awarded £186m in incentive payments and an additional year-end bonus of £294m. While this was undoubtedly well-deserved by those who managed to achieve it, and it certainly secured an additional improvement to the aggregate bottom line, many trusts felt it did not represent an equitable distribution of scarce resources.

The majority (54%) of recipients to our survey believed control totals have improved the overall financial management of the provider sector, while 52% believed it had improved their focus on driving savings.

Tim Connolly    Policy Advisor - Finances

There are, after all, sustained financial challenges in the provider sector. Trusts drew down a total of £2.7bn of interim revenue support in 16/17, amounting to a third more than the previous year. Withholding cash from trusts that need financial support through the STF, then, will not deliver an overall saving for the system.

Returning to the positive side of the ledger, all but £4m of the £2.7bn STF stayed in the provider sector. This was supported by robust reporting of the methodology detailing how the incentive payments and year-end bonus was distributed – a significant improvement in transparency.

 

The future landscape

The difficult truth is that, if the STF was removed in 2019/20, the provider sector deficit would increase considerably once more. Trusts tell us they are deeply vulnerable to its removal, and need a clear commitment to its retention.

Trusts tell us they are deeply vulnerable to its [STF] removal, and need a clear commitment to its retention.

Tim Connolly    Policy Advisor - Finances

More broadly, it’s clear that the overall financial framework that trusts are now operating in - a framework designed to respond to a very particular set of challenges – is incompatible in the long-term with the principles of appropriate delegation that underpin the NHS. A review of the STF and control totals should be carried out with input from the provider sector to determine how a future framework should work.  

There is no easy solution to the challenge of delivering a sustainable financial position for the provider sector. We believe, however, that, based on improvements already made, the provider sector should be given the opportunity to regain its financial autonomy.

 

 This article was first published by Public Finance on 3 October 2017

 

 

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Tim Connolly
Policy advisor - finances

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