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Poor financial performance not to blame for NHS woes

It’s system wide pressures often beyond local trusts’ control, says report

Caroline White

Wednesday, 02 March 2016

Poor performance is not to blame for NHS woes. Rather, local trusts are being squeezed on all sides by pressures often beyond their control, and are fighting a losing battle to balance their books this year, let alone deliver the £22bn of savings demanded of them over the next five years, finds an analysis published by charity The Health Foundation.

A perfect storm: an impossible climate for NHS providers’ finances? Is based on a statistical analysis of over 25 factors commonly believed to be associated with the financial deficit to determine which were most closely linked.

It found a rising staff bill and the tariff set nationally for most hospital treatments were among the main factors driving the poor financial performance of acute hospitals.

The wages bill accounted for 63% of total expenditure in 2014-15. Of the £48bn spent on staffing in England, 7% (£3.4bn) was spent on agency staff, which cost twice as much per head as permanent staff. For every one percentage point increase in a trust’s staff cost taken up by agency spend, their net financial position is likely to fall by 0.4% of their operating cost.

Payment by Results tariff accounted for 60% of trust income in 2014-15 (or 67% of income for acute and specialist trusts). Acute hospitals in deficit tend to be more reliant on the national tariff, which accounts for 69% of their income on average, than those in surplus (62% of income on average).

The analysis also found that poor quality of care was associated with larger deficits. Acute and specialist trusts rated as inadequate by health services inspectorate the Care Quality Commission were more likely to be in deficit than other trusts.

The same was true of trusts whose staff were less likely to recommend the care provided by their organisation to family and friends. Although the study did not establish whether financial deficit causes poor care quality, or vice versa, it shows a clear association, suggesting that if finances continue to deteriorate, the quality of patient care might also go down. 

But factors often thought to undermine hospitals’ financial performance including Private Finance Initiatives (PFIs), were not significantly linked to deficits. While payments towards PFI deals did account for over 5% of total spending for nine trusts in 2014-15, it does not seem to be a crucial issue for the NHS as a whole.

Furthermore, the report found that demand and costs for health care are growing faster (2.2%) than increases in funding (2%), and the NHS is failing to deliver the productivity gains necessary to bridge this gap. Overall, the productivity of acute hospitals increased by only 0.3% between 2009-10 and 2014-15, which works out at an average rate of 0.1% per year.

The publication of the report follows the recent announcement by Monitor and the Trust Development Authority that NHS providers were £2.3bn in the red at the end of the third quarter of 2015-16, a figure projected to reach £2.8bn by the end of the financial year.

The deficit is now so widespread across the NHS— affecting 75% of all trusts and 95% of acute hospitals—that is can only be seen as a system wide problem, says the report.

Anita Charlesworth, Director of Research and Economics at the Health Foundation said: “NHS providers’ finances are in a shocking state with an unprecedented number of hospitals reporting deficits. The situation is particularly bad for acute hospitals, with 95% in the red.

“The financial challenges facing our hospitals are not the result of weaknesses in the management of individual organisations. They stem from poor workforce planning and fundamentally an unrealistic expectation of efficiency improvement in the NHS.

“Providers are now between a rock and a hard place. The challenges facing the NHS are not short-term. The health service faces another five years of austerity. If quality and access to care are not to suffer we need concerted action at a national level to improve productivity year-in, year-out. Rapid progress to resolve the problems in social care, which is so intertwined with the NHS, is also needed. Most critically, we need urgent action to tackle the gap between the need for skilled staff and the supply of suitably trained workers.”

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