10 reflections on...

The Q1 financial performance data

NHS Improvement has published the quarter 1 performance report covering the operational and financial performance of 233 trusts in England. The picture is pretty clear: although financial performance is just about holding up at this early point in the financial year, the risks are building. In this blog, NHS Providers head of analysis Phillippa Hentsch examines the implications for trusts and wider NHS finances.


1.   The provider sector faced a very destabilising first quarter of the financial year as it responded to the serious incidents of the cyber attack, the terrorist attacks in London and Manchester and the fire at Grenfell Tower. The sector responded exceptionally     well to these tragic events but inevitably this has had implications for trusts finances, as routine care would have been cancelled to prioritise urgent care. These events contributed to income being 0.3% below plan for the quarter.


2.   The forecast deficit position for this year has increased from £496 million to £523 million, £27 million worse than planned. That said, providers continue to make good progress towards reducing the deficit, and despite the slippage in the first quarter, the sector is still planning to improve on last year’s -£791 million by over £260 million.


3.   The sector has already delivered £520 million in the first three months of the year through cost improvement plans (CIPs), which suggests that providers will once again deliver over £3bn in savings this year. The sector is still very reliant on non-recurrent measures, as they made up 19% of savings achieved (compared to a planned 7%). Interestingly, NHS Improvement suggests that savings achieved through the Carter programme accounted for 35% of the overall delivery – I for one would be interested to see the detail underpinning this, not least because the rate of savings has remained comparable to the pre-Carter era. It is not clear whether the savings have been rebadged or there is increased scope for savings as a result of the programme.


4.   A key achievement in this quarter is the continued reduction in agency and contract spend, which has reduced by £169 million (22%) since the same period last year, to £592 million. It is significant that this is the first time NHS providers have reported an underspend against plan. Although these savings have led to an increase in bank staff bill (which is £161 million above plan), shifting agency workers to bank and substantive roles is almost always going to be a more cost effective and sustainable solution for the sector as it faces a national workforce shortage.


5.   There are, however, signs that financial risks have been building over the quarter. The sector is £736 million in deficit at the end of June (compared to £461 million in the same period last year), and there are 162 providers in deficit, the highest number since quarter one in 2015/16. Historically, the pattern is for more trusts to go in to deficit in the first quarter, as more savings are banked later in the financial year, but the size of the deficit this quarter suggests that there could be substantial downside risks in this year’s plans.


6.   Costs were only 0.1% higher than plan over the period, which is no mean feat given the Nuffield Trust highlighted £1.7 billion of unfunded inflationary pressures this year. Trusts are forecasting that overall spending on waiting list initiatives and outsourcing is likely to fall this year, potentially an indication of the de-prioritisation of the treatment to referral standard for routine operations. The suspension of national sanctions is still delivering benefits to the sector, reducing the amount providers will be fined from £99 million last year to a £75 million forecast this year. Critically though, national business rules, in the form of the marginal rate for emergency admissions and readmission rate, remain, and will cost the sector a planned £531 million this year (with only £57 million to be reinvested back in), taking valuable resources away from the frontline.


7.   Operational performance is not where we need to be at this point in the year. 90.3% of patients were seen within four hours in A&E, above the current national target of 90%, but this is exactly the same as quarter one last year, despite the national and local focus on improving performance. Also, although £1bn has been invested this year to tackle delayed transfers of care (DTOCs), the year to date costs associated with DTOCs were almost unchanged compared to the same period last year, which confirms our research that the additional investment is not consistently supporting NHS services.


8.   At quarter one, 206 trusts signed up to a control total (compared to 217 at the end of last year). It is increasingly clear that the sector has come to rely very heavily on sustainability and transformation funding (STF): £154 million of STF had been included in the reported year to date position. NHS Improvement recognises that a more sustainable strategy is required for how this funding should flow to the sector.


9.   For those aficionados of the national tariff, it is interesting to note that the income received by providers through the tariff is not having the impact one would expect. Elective inpatient activity was 1.5% below plan but income for elective work was 2.3% less than plan. However, non-elective income was not affected in the same way. One possible reason for this is that the new currency design (HRG 4+) is disadvantaging providers, counter to its aims and objectives.


10.  The biggest unanswered question in the quarter one results appears to be what will happen to capital funding this year? Discussions between the Department of Health and NHS Improvement to agree a capital resource limit for this year are still ongoing, but it is suggested that it will be set at £2.9 billion, which falls well short of what is required. This figure compares to:

a) £2.94bn spent last year (when providers were urged in the last quarter to stop or defer spending where possible);

b) £4.3bn as forecast in provider plans; and

c) £3.4bn as forecast by NHS Improvement.


This article was first published by the HSJ on 8 September 2017

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