Winter is a lose-lose situation for patients, staff and NHS finances

Adam Wright profile picture

22 January 2018

Adam Wright
Policy Officer - Finances


In early January we said the NHS had reached a watershed moment’. Faced with unprecedented demand and within the existing resources, NHS trusts can no longer deliver the performance standards for A&E, waiting times and cancer care. We know that trusts are doing all they can to provide high quality and timely services to patients, but there are too many instances of staff working flat out and patients waiting longer to be treated.

Earlier this month, the National Emergency Pressures Panel (NEPP) recommended NHS trusts postpone non-urgent elective appointments until the end of January. Although we know of many trusts continuing as planned with elective care, or only postponing a proportion of their work, the hidden implication of this is the impact it will have on finances. In a year when the sector has been asked to focus on reducing the deficit further and with even more patients coming through the door, this is a concern.  

Planned care can often be better reimbursed than emergency care, so the shift towards providing more emergency care over this period could see income decline. What’s more, trusts are now much more likely to be paying over the odds for agency staff as they struggle to cope with emergency demand. We also know that some providers are having to open up additional beds at short notice, to cope with demand, which further increases their costs.

Planned care can often be better reimbursed than emergency care, so the shift towards providing more emergency care over this period could see income decline.

Adam Wright    

 

So what are the costs of managing winter?

It is difficult to estimate the lost income this might represent for trusts. The national price for elective activity can range from anywhere between £40,000 and £92 per spell. Or, using 2016/17 reference costs, the average unit costs for elective care is estimated at £738 for day cases and £3,684 for inpatients. While we don’t know precisely how many operations have been deferred, delayed or cancelled, NHS England put that figure at around 55,000.

So, using the figures above, providers could lose between £41m (assuming all day cases are cancelled) to £203m (assuming all elective inpatient stays are cancelled) of planned income. Compounding this situation is the Marginal Rate Emergency Tariff (MRET). The rule means that trusts are reimbursed for the cost of emergency admissions beyond a baseline - set in 2008/2009 - at only 70% of the national price. Commissioners are required to reinvest the remaining 30% into demand management schemes, but trusts continue to tell us they are not seeing the evidence that this is happening everywhere. The rationale for introducing MRET was to reduce emergency demand, yet demand has continued to grow.

Providers could lose between £41m (assuming all day cases are cancelled) to £203m (assuming all elective inpatient stays are cancelled) of planned income.

Adam Wright    

The situation will also have implications for the amount of sustainability and transformation funding (STF) trusts might receive. STF is now linked to achieving financial control totals and adequate A&E performance – so even a small dip in performance will have negative implications for the level of STF trusts have planned to receive. Worryingly, this may particularly affect those trusts who have recently put the needs of the patient and the wider health and social care system first. Perhaps this might be through accepting ambulance diverts, or implementing new services that are leading to more emergency admissions but improve patient care, such as surgical assessment units.

Even a small dip in performance will have negative implications for the level of STF trusts have planned to receive. Worryingly, this may particularly affect those trusts who have recently put the needs of the patient and the wider health and social care system first.

Adam Wright    

 

What needs to be done now?

In light of these emerging financial risks, action is now required to support trusts and there are a number of concrete steps that could be taken. These short term measures, set out below, should mitigate further deterioration in the acute sector position. However, we are clear that resources should not be diverted away from the other parts of the provider sector that also need substantial investment not just over winter but all year round – namely the mental health and community sectors. 

Resources should not be diverted away from the other parts of the provider sector that also need substantial investment not just over winter but all year round – namely the mental health and community sectors.

Adam Wright    

Firstly, the performance criteria required to unlock 30% of the STF funding could be revisited in light of the current pressures trusts are facing in meeting the A&E recovery trajectory. And while we recognise the need to maintain financial discipline in the provider sector and the STF’s current importance to the ability of trusts to deliver on NHS constitutional targets, the allocation of the STF in quarter four could be reassessed to ensure it reflects the reality on the ground for trusts. Without this, some providers will not receive planned STF, because of performance pressures outside their control. 

Secondly, in the spirit of closer system collaboration and the move towards system control totals, there should be recognition that less elective activity means activity and finance plans agreed between commissioners and providers at the beginning of the year do not reflect the current reality. The MRET rule could be suspended or amended so providers are appropriately reimbursed for the emergency work they undertake over this period. Similarly, the 30 day readmission penalty could be suspended, just as the mixed sex breaches fines have been. Failing this, year end discussions between providers and commissioners could involve an agreement around the loss of elective income and extra emergency care costs.

Year end discussions between providers and commissioners could involve an agreement around the loss of elective income and extra emergency care costs.

Adam Wright    

Thirdly, there must be a proportionate regulatory response for those trusts who are struggling to stay within their agency staff caps to cope with additional demand. While recognising the need to not undermine the considerable progress trusts have made in reducing their agency spend, regulators should ensure trusts are not burdened with excessive reporting at a time of intense challenge.

If these actions are taken, acute providers will be in a better position to meet the winter pressures they are currently facing and recover performance once these intense pressures are over. Without it we will need to see how the unearned STF linked to financial performance – control totals – is allocated. It may be needed to minimise the distortive impact the current allocation of the STF might have on the sector.

Trusts up and down the country have made every effort to continue to provide high quality, timely services to patients in unprecedented conditions in recent weeks. It is critical that steps are taken nationally to mitigate the unavoidable financial impact those efforts will have on trusts.

 

This article was first published by the HSJ on 22 January 2018.

 

About the author

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Adam Wright
Policy Officer - Finances
@adamwrite

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