In last year’s blog Richard Douglas concluded that 2017-18 was the second year of broad consolidation of NHS finances and asked whether the system was now in place to move forward and improve.
So, what happened in 2018-19?
The Department of Health and Social Care (DHSC) ended the year living within all its Parliamentary and Treasury controls. It did so with a little more to spare (on revenue at least) than in recent years. The Resource (current) spending limit was underspent by a relatively healthy £646 million; the capital spending limit by a much tighter £42 million. And as far as you can see, there was no funny jiggery pokery to get there. So a big pat on the back from the Treasury for the Department.
Diving down below the DHSC headlines: the net NHS position (if you exclude the £256 million “benefit” of the transfer of Carillion assets) was a surplus of £76 million (deficit of £16 million 2017-18) made up of a commissioner/NHS England underspend of £916 million (£970 million in 2017-18) and a provider deficit of £840 million (£968 million in 2017-18). In absolute terms a swing in the net NHS position of almost £100 million may look big, but it’s only around 8 hours spending! The fact that there has been so little change is not really surprising, given that provider spending increased in real terms by about 1.3% and activity by 3.6%. A serious improvement would have required a productivity miracle.
Getting below the national aggregate numbers: 106 providers reported deficits (101 in 2017-18), with 88 in the acute sector. Once again big deficits were concentrated in a handful of organisations, with five organisations (Kings, Cambridge, Lincolnshire, Barts and Morecambe Bay) accounting for more than a quarter of the gross deficit. On the commissioner side, 33 CCGs reported deficits (75 in 2017-18).
Overall, 2018-19 looks pretty much like 2017-18.
Looking forward, it is clear that the current financial regime is broken with tariff funding insufficient to allow a reasonably efficient acute provider to cover its costs.
Outside of normal income streams, providers accessed sustainability funding of around £2.5 billion. Despite this, they needed short-term cash support from the DHSC totalling £3,054 million (£2,631 million in 2017-18). The problems they face are now not just the deficit but the level of debt. Outstanding current loans to DHSC have more than doubled in a year from £1.7 billion to £3.6 billion. Total loans have increased by £3 billion to £14 billion. In addition to DHSC support, there is a continuing cross subsidy from other sectors to acute hospitals. The acute deficit was covered not just by a commissioning surplus of over £900 million but also mental health, ambulance, specialist and community trust combined surpluses of over £700 million. The current system looks broken beyond repair and needs rethinking.
First steps have been made towards resetting the financial framework for 2019-20 with additional tariff funding, a blended payment system and lower central reserves. But more change is needed as we move away from market to integrated care thinking and if, to quote a previous Chief Executive of the NHS, local organisations are to be incentivised to “look out, not up”.
So far, I’ve focussed on the revenue position, but the strain is also now showing on capital with the sector desperate for investment, with DHSC and the national bodies facing challenges of both control and prioritisation.
As noted earlier, DHSC was very close to the capital spending limit, driven by provider capital expenditure increasing from £3.4 billion to £4.1 billion. Under the current regime there is little that they can do to control this, other than through exhortation, as around two thirds of spend is self financed. And nor can they easily prioritise where the investment takes place. Of the £4.1 billion capital some £3.2 billion went on land and buildings and just £0.34 billion in IT. Over the last three years we have seen little over £1 billion investment by providers in IT in a £85 billion plus business. If we are looking to really transform and modernise the NHS the balance here doesn’t feel right.
One thing may be different in 2019. As I wrote this last year England had just exited a World Cup at the semi-final stage. This year, the cricketers have shown how it should be done.