1 Financial performance of the NHS
1. In 2006-07, the NHS reported a net surplus of £515 million (representing 0.6% of total available resources). This surplus was made up of 287 NHS organisations delivering a surplus of £1,431 million, 82 NHS organisations having a combined deficit of £917 million, and three NHS organisations breaking even. The number of organisations reporting a deficit fell to 22%, compared to 33% in 2006-07.[2]
2. The surplus followed two years of increasing deficits in the NHS. In 2005-06, the Department of Health (the Department) reported a net deficit across NHS organisations of £547 million (representing 0.7% of total available resources), up from £251 million in 2004-05 (Figure 1). Achieving financial balance for the NHS was a key strategic priority for the Department in 2006-07. 80% of the remaining £917 million deficit is concentrated in a core 10% of NHS organisations.[3]
Figure 1: Overall financial performance of the NHS 2001-02 to 2006-07
Source: C&AG's Report
3. There are still large variations in the financial performance of the different types of NHS organisation. Despite the headline NHS surplus, the Primary Care Trust and NHS Trust sectors both remain in overall deficit. While Strategic Health Authorities collectively in 2006-07 reported a surplus of £962 million, Primary Care Trusts in total reported a deficit of £370 million and NHS Trusts had a deficit of £77 million.[4] The size of the largest deficits in the Primary Care Trust sector is increasing: in 2006-07, 22 Primary Care Trusts had a deficit in excess of £10 million, including two over £50 million (Cambridgeshire Primary Care Trust and Hillingdon Primary Care Trust).[5] The Department considers that these deficits partly reflect the situation prior to the structural changes introduced following 'Commissioning a Patient-Led NHS' (July 2005). The number of Primary Care Trusts was reduced from 303 to 152 in 2006-07. As a result financial expertise is no longer so thinly spread across the NHS, with more experienced staff available to focus on reducing the remaining large deficits.[6] Variations also exist within the NHS Trust sector, with Acute NHS Trusts reporting a collective deficit of £133 million, whereas Mental Health NHS Trusts had a surplus of £47 million.[7]
4. There are also large regional variations in NHS financial performance. East of England, for example, had the largest total Primary Care Trust deficit of £216 million, with the West Midlands having the largest surplus at £11 million (Figure 2). Within regions there are also significant differences. For example, North Yorkshire and York Primary Care Trust recorded a deficit in 2006-07 whereas its counterparts in West and South Yorkshire were in surplus. Differences in performance arise from a range of factors. Dispersed populations with less potential to realise the cost benefit of economies of scale and large numbers of smaller hospitals with higher levels of fixed costs can be contributory factors. There is, however, no evidence that the number of consultants has an impact on financial performance.[8]
5. Sound financial management is a key factor. The largest deficit was recorded by the East of England Strategic Health Authority area, almost three times larger than the next biggest deficit reported by the South East Cost Strategy Health Authority area (Figure 2). The deficit in the former, which has built up over the last four to five years, reflects relatively poor standards of financial management. Remedial action was only taken in the past year but as a consequence the Department anticipates East of England will achieve a surplus overall in 2007-08.[9]
6. Financial forecasting and costing remain weak and require further improvement. Financial decisions have to be taken at all levels in the NHS based on forecast data. Such forecasts supported by reliable cost information allow organisations to plan levels of health care activity while also enabling Strategic Health Authorities and the Department to monitor the regional and national position. During 2006-07 NHS organisations' forecasting remained weak. Predicted figures from the NHS for the final financial position for 2006-07 fluctuated throughout the year, and as late as February 2007 when the third quarter results were published the Department was expecting just to break even.[10] There is some evidence that this problem still exists. For example, the 2007-08 quarter one prediction that there would be a surplus of £916 million was revised at quarters two and three to £1.8 billion. The Department consider that this change arose from unforeseen circumstances such as a saving of £200 million from prescribing generic drugs.[11]
Figure 2: Regional variations in NHS financial performance 2006-07
|
Strategic Health Authority Area |
Strategic Health Authority
Surplus
£million |
Primary Care Trusts |
NHS Trusts |
Overall
2006-07
£million |
Overall
2005-06
£million |
Change
£million
|
| |
|
Number |
Surplus/
(deficit)
£million |
Number |
Surplus/
(deficit)
£million |
|
|
|
|
East Midlands |
80.5 |
9 |
2.8 |
12 |
-15.5 |
67.8 |
-13.4 |
81.1 |
|
East of England |
62.3 |
14 |
-216.3 |
22 |
0.9 |
-153.1 |
-233.6 |
80.5 |
|
London |
180.1 |
31 |
-93.6 |
38 |
6.5 |
93.0 |
-174.1 |
267.1 |
|
North East |
64.5 |
12 |
4.6 |
8 |
5.4 |
74.5 |
21.0 |
53.6 |
|
North West |
206.4 |
24 |
-2.4 |
35 |
-14.6 |
189.3 |
57.9 |
131.5 |
|
South Central |
31.6 |
9 |
-0.5 |
15 |
6.6 |
37.8 |
-58.7 |
96.6 |
|
South East Coast |
30.4 |
8 |
-52.0 |
16 |
-21.1 |
-42.7 |
-94.0 |
51.3 |
|
South West |
94.7 |
14 |
0.5 |
22 |
-39.6 |
55.6 |
-48.6 |
104.2 |
|
West Midlands |
33.2 |
17 |
11.4 |
26 |
16.4 |
61.1 |
-38.2 |
99.3 |
|
Yorkshire & the Humber |
178.0 |
14 |
-24.4 |
16 |
-22.3 |
131.3 |
34.5 |
96.9 |
|
Total |
961.8 |
152 |
-369.9 |
210 |
-77.4 |
514.6 |
-547.3 |
1,061.9 |
Source: C&AG's Report
2 C&AG's Report, para 3 Back
3 Q 33; C&AG's Report, para 20 Back
4 C&AG's Report, paras 1.6, 1.11, 1.15 Back
5 C&AG's Report, Appendix 2 Back
6 Q 140 Back
7 C&AG's Report, para 1.17 Back
8 Qq 22-30 Back
9 Qq 33-37 Back
10 Qq 2-4; C&AG's Report, para 3.6 Back
11 Qq-4 Back
| 
