1. Following two years of deficits the NHS as a whole delivered a £515 million net surplus in 2006-07. This was achieved by top slicing some budgets and holding them in reserves, targeted support for organisations with the most significant financial problems and tighter performance management of NHS finances by the Department.
2. A small core of NHS organisations have a combined deficit of £917 million, 80% of which exists in 10% of organisations. Building on lessons learned from the turnaround programme, Strategic Health Authorities need to support these organisations to achieve financial balance through, for example, helping to devise recovery plans, establishing networks to exchange good practice, training to improve financial management and facilitating the sharing of financial expertise.
3. There are significant regional variations in the financial performance of the NHS. While every Strategic Health Authority area improved its financial standing compared to 2005-06, performance ranged from a deficit of £153 million in the East of England to a surplus of £189 million in the North West. The Department should establish the reasons behind the variations in financial performance through benchmarking and establish whether they reflect geographical differences in health care needs, provision and quality.
4. There is some evidence that financial balance was achieved by slowing down or postponing some healthcare. While the overall quality of NHS health care, as rated by the Healthcare Commission, has improved, 14 Primary Care Trusts made financial savings by requiring their provider trusts to freeze or slow down non-essential planned treatments. To minimise the risk of this happening again NHS organisations need to agree annual work plans and supporting budgets before the start of the financial year, profile work as far as practicable, and have reliable information early enough to take remedial action where health service provision is put at risk.
5. More robust costing systems are essential if the NHS is to achieve longer term financial stability. Under Payment by Results, NHS organisations receive income based on the work they perform in accordance with tariffs increasingly agreed nationally. Where costs are fixed there is a risk that income may not be sufficient to cover them resulting in a deficit. Management boards of NHS organisations need to be confident that their financial systems are fit for purpose to enable all costs to be understood, analysed in sufficient detail, and managed effectively.
6. Financial forecasting is not sufficiently reliable and needs to improve. Maintaining financial balance requires accurate and timely forecasting of income and expenditure. Forecast financial position data provided by NHS organisations throughout 2006-07 was often inaccurate. Strategic Health Authorities should identify those organisations which consistently provide poor forecasts and help them improve through training and sharing of good practice.
7. There is a clear link between financial performance and the quality of service provided. NHS organisations which perform well financially tend to provide better quality services. Sound sustainable financial management is therefore vital in delivering improved health care. In reviewing performance and capability, the senior management of NHS organisations should assess how well their financial and clinical staff engage and the extent to which financial awareness is embedded in their organisations. Where this is deficient an improvement programme with key milestones should be put in place.
8. The Department and the NHS are forecasting a surplus of £1.8 billion in 2007-08. While maintaining financial stability is important, large surpluses increase the risk that the NHS will be perceived as delivering less health care than it could have done if resources had been fully utilised. NHS organisations will need to be able to demonstrate to their local stakeholders that the level of health care delivered meets local priorities and needs.
