House of Commons - Financial sustainability of NHS Bodies

Financial sustainability of NHS Bodies - Public Accounts Committee Contents

1 Pressures on the financial sustainability of the NHS

1. On the basis of a report by the Comptroller and Auditor General, we took evidence from the Department of Health (the Department), NHS England, Monitor and the NHS Trust Development Authority on the financial sustainability of NHS bodies.[1] We also took evidence from Barking Havering and Redbridge University Hospitals NHS Trust, Barnet Clinical Commissioning Group, Medway Clinical Commissioning Group and University Hospitals Coventry and Warwickshire NHS Trust.

2. In 2013-14, the Department allocated £95.2 billion to NHS England to pay for NHS services.[2] NHS England is responsible for commissioning primary care and specialised services, and is accountable to the Department for its spending.[3] On 1 April 2013, 211 clinical commissioning groups replaced ten strategic health authorities and 151 primary care trusts to take responsibility for commissioning most healthcare services from community, secondary and specialist providers.[4] NHS England allocated £65.4 billion to clinical commissioning groups in England to commission health care services, on behalf of their local populations, from 98 NHS trusts and 147 NHS foundation trusts.[5] Monitor regulates NHS foundation trusts, and another new body, the NHS Trust Development Authority, supports NHS trusts that are yet to achieve foundation status.[6]

3. The NHS must be financially sustainable in the medium to long term for it to provide sustainable services to patients. Key tests of financial sustainability include changes in the surplus or deficit of the NHS as a whole and the number and scale of organisations in financial distress.[7] However, the financial health of NHS bodies has worsened. Between 2012-13 and 2013-14, the net surplus of NHS commissioners, foundation trusts and NHS trusts decreased from £2.1 billion to £722 million.[8] The percentage of NHS trusts and foundation trusts in deficit increased from 10% in 2012-13 to 26% in 2013-14; and nearly a quarter of clinical commissioning groups ended the 2013-14 financial year with a less favourable financial position than they planned.[9] The Department issued £1.8 billion of cash support to NHS trusts and NHS foundation trusts between 2006-07 and 2013-14 to help them meet their operational cash needs.[10]

4. At the end of September 2014, 80% of NHS foundation trusts that provide acute hospital services were reporting a deficit.[11] Both Barking Havering and Redbridge University Hospitals NHS Trust and University Hospitals Coventry and Warwickshire NHS Trust told us that one of the main reasons for the increasing number of acute providers in deficit is the payment system for emergency admissions.[12] Providers are paid 30% of standard prices for all emergency admissions above 2008-09 levels, whereas the number of emergency admissions has increased by 48% over the last 15 years.[13] In December 2013, Monitor and NHS England reviewed the emergency payment system and concluded that adjustments to the baseline should be made when providers faced significant increases in the number of emergency admissions.[14] Monitor told us it believed admissions would have increased even faster had the 30% rate not been in place, but accepted that there were problems with the payment system that still needed to be addressed.[15] Monitor and NHS England noted that they had begun a review of the payment system, and planned to update the 2008-09 baseline next year.[16] Monitor and the NHS Trust Development Authority assured us that planned changes would result in fewer acute trusts in deficit. In the interim we heard that, for example at Coventry and Warwickshire University Hospitals NHS Trust, the hospital and clinical commissioning group had made a local agreement to pay for emergency admissions at 2013-14 activity levels, and this was helping to address the financial challenges the hospital faced.[17]

5. The Department's policy is that commissioning bodies should invest the remaining 70% of the tariff for emergency admissions into improving patient care outside hospital settings, to help reduce the number of inappropriate hospital admissions. However, alternatives to hospital care, including enhanced primary care services and discharge from emergency departments into community care, are not always available.[18] Monitor accepted that much more transparency was needed around how the remaining 70% was actually spent and whether this was helping to reduce unnecessary hospital admissions.[19]

6. The Department told us that, between 2012-13 and 2013-14, the amount the NHS spent on temporary medical staff increased from £2.1 billion to £2.6 billion.[20] Many acute providers are facing cost pressures because they have a shortage of permanent consultants, particularly in accident and emergency departments.[21] For example, Barking Havering and Redbridge University Hospitals NHS Trust told us that it had a 50% shortage of emergency consultants and was spending £1.5 million a month on temporary staff. It said it paid £110 an hour for some locum emergency consultants working a 16 hour shift, whereas the basic starting salary for a permanent emergency consultant was around £75,000.[22] It costs the taxpayer £400,000 to train an emergency consultant, but some consultants were choosing to leave the NHS to become professional temporary staff.[23]

7. We asked the Department about its strategy for reducing the impact on providers' costs of hiring temporary staff. It told us that it was developing a toolkit to share with providers, which aimed to predict volume so that providers could ensure they recruit enough employees to meet the numbers needed.[24] The Department said it was also considering ways of lowering the price of agency staff.[25] For example, the Department explained that it was considering how to use its national purchasing power and position as the main buyer of medical staff from the agency market to achieve a better price.[26] While the Department has a framework contract that seeks to achieve the best price possible by gaining sufficient volumes, some agencies do not take part in the framework.[27] NHS England also said it must ensure that it fills the increased number of training places in emergency medicine, to help address the shortage in emergency consultants.[28]

8. According to the Department, 31% of providers have a private finance initiative (PFI) scheme, and the NHS spends a total of £1.8 billion each year on PFI payments.[29] The National Audit Office noted in its report that organisations with the highest capital charges, as a proportion of income, were the most likely to report weak financial results in 2013-14.[30] Four out of six trusts with deficits greater than £25 million had a PFI scheme.[31] Some trusts have improved their financial position by refinancing their PFI. For example, Northumbria Healthcare NHS Foundation Trust, which plans to deliver a £21.5 million surplus in 2014-15, arranged a loan with Northumberland County Council to buy out its PFI scheme.[32] The Department said the capital cost of refinancing PFI schemes would be significant and that it would not be appropriate in all cases to consider refinancing, but told us it was considering options for doing this, where appropriate, in a way that provides value for money.[33] One option it was exploring was renegotiating 'soft facilities management services', such as catering, cleaning or security, which make up a large cost of some PFI schemes.[34]