House of Commons - Financial sustainability of NHS Bodies

Financial sustainability of NHS Bodies - Public Accounts Committee Contents

2 Managing future financial risks

now are 'almost certain' to continue to be under financial pressure next year.[35] It suggested that some trusts were in deficit because the local health service was 'out of balance', for example because community and primary care services were not working well which places pressure on hospitals.[36] In October 2014, NHS England published its Five Year Forward View, which proposes profound changes to the way services are delivered. A key focus of the plan is a range of new models of care, which aim to limit the rise in hospital admissions; a major pressure facing the health service. These include large GP practices employing hospital doctors to provide extra services, such as diagnostics and outpatient appointments; and making better use of pharmacists for minor illnesses.[37]

10. NHS England and Monitor currently set a target of 4% efficiency savings.[38] In practice, the NHS has so far delivered annual efficiency savings of 1% to 2%, but this has been partly through pay freezes, which NHS England and Monitor agreed was unsustainable.[39] NHS England told us that 5% to 5.6% one-off efficiency savings could be delivered from less efficient providers 'catching up' with the most efficient providers. Monitor and NHS England also estimated that an annual 1.2% to 1.3% of efficiency savings could be delivered through advances in technology and medicine.[40] However, NHS England suggested that it would be difficult, using current models of care, to sustain the 2% to 3% annual savings that would be needed to offer the modern health service that people want.[41]

11. Looking ahead to the next five years, Monitor and NHS England said that the NHS would have to achieve system efficiencies by changing the way healthcare was provided.[42] Both NHS England and Monitor agreed that upfront investment was needed to make these changes yet, with a growing number of organisations in deficit, the money for this was limited.[43] NHS England and the Department accepted that freeing up some of the surplus capital assets in the NHS could create some of the required funding for upfront investment in new models of care.[44] For example, they highlighted that in London there was around £1.5 billion worth of unused land and premises.[45] Similarly, Monitor estimated in its 2013 publication Closing the NHS funding gap that selling underused estate across the acute and mental health sectors could yield a gain of £7.5 billion.[46] Monitor suggested that, if the NHS made better use of technologies, integration of mental and physical care and more effective prevention of illness, the residual funding requirement would be 1.5% in real terms each year—which it hoped would be less than GDP growth.[47]

12. The National Audit Office found, however, that trusts do not collect and record cost data consistently enough or in enough detail for systematic analysis. For example, Monitor reported in 2013 that a lack of detailed data on employment costs collected in a consistent way made it almost impossible to distinguish between avoidable and unavoidable components of expenditure.[48] Monitor and NHS England agreed that the NHS needed a much more systematic, detailed and consistent approach to costing across the whole of the provider sector. They said that this would provide individual providers, commissioners and national oversight bodies with a much better insight into what was happening.[49]

13. The NHS Five Year Forward View challenges local leaders to look beyond their individual organisations towards development of whole healthcare economies.[50] NHS England acknowledged that in most areas different services operated separately from one another.[51] Different organisations were looking at their own deficits and surpluses, and there was not an overall long-term plan.[52] As a result, there was a gap between what clinical commissioning groups were intending to commission and the income that trusts were expecting to receive; and many clinical commissioning groups were in surplus while hospitals were struggling.[53]

14. The National Audit Office found that most commissioners and providers felt the new structure was fragmented, and that they thought no organisation was responsible for taking a strategic view across the whole health economy.[54] Coventry and Warwickshire University Hospitals NHS Trust suggested that following the reform to the health system, which took place in April 2013, there was no clear organisation in place for system leadership, and it was important for local organisations to work together to lead their own systems. The Trust said that it had only recently been seeing representatives from NHS England, the NHS Trust Development Authority and clinical commissioning groups coming together to provide leadership in their local health economy.[55] NHS England told us that in the past nine months relationships between different organisations had 'come on an enormous distance'; and national bodies were 'increasingly ensuring there was a shared point of view' about required changes to models of care in each area.[56]

15. Healthcare services are provided under different payment mechanisms with financial incentives that are not aligned.[57] For example, community care services tend to use block contracts where payments are not based on the number of patients handled, whereas acute services are paid on the basis of activity using 'payment by results' tariffs.[58] This makes it financially difficult for acute hospitals to give up activity and for services in the community to take on additional activity. NHS England noted that it wanted to change the way it pays for all healthcare, so that it would be easier to integrate services and design the models of care set out in the Five Year Forward View.[59] It told us that it was planning to move away from paying for each component of care and instead moving towards paying for a 'year of care'.[60] This payment arrangement is known as 'capitation' where a group of providers are paid a set amount for each person assigned to them, per period of time, whether or not that person seeks care. Monitor and NHS England noted that they would shortly publish a paper on their proposals, and that they were also consulting local clinical commissioning groups and providers on these changes.[61]

16. It is government policy that all NHS trusts should achieve foundation status, if they are to succeed in a financially demanding environment. Becoming a foundation trust requires strong governance, long-term financial viability and a framework to deliver quality services. The NHS Trust Development Authority told us that there were still 93 NHS trusts yet to achieve foundation status, and it was reviewing how long it would take for these trusts to achieve foundation status in the current environment.[62] Among these trusts there is a group that will need at least four years and will need to overcome significant financial challenges before they can produce a viable plan.[63]

35 Q 155 Back

36 Qq 113-114 Back

37 Qq 111, 154-155 Back

38 Qq 188, 193 Back

39 Qq 159, 185-194, 196 Back

40 Q 197 Back

41 Qq 159-160 Back

42 Qq 159, 193-194, 197-200 Back

43 Qq 159, 161 Back

44 Qq 163, 165, 172-173, 177 Back

45 Qq 172-173 Back

46 Q 163 Back