1. HFMA NHS Financial Temperature Check
Finance directors’ views on financial challenges facing the NHS: December 2014

2. Introduction
Summarises results of HFMA’s second NHS financial temperature check survey of NHS finance directors, published December 2014
Includes views of sample from all UK finance directors working in English commissioning and provider bodies (trusts, CCGs and area teams) and devolved nation NHS bodies
Survey collected views from 21 October to 4 November 2014
First briefing published June 2014

3. Response rate was high, covering nearly half of English trusts and 1 in 3 other bodies
Organisation type
CFO responses to survey
Org responses to survey
% CFO responses
% org responses
CCGs 51 64
30%
English provider trusts
119
49%
of which:- NHS trusts 45
46%
of which:- FTs 74
50%
Area teams 8
32%
Scotland 6
40%
Wales 3
33%
Northern Ireland
100%
This is the second in a series of HFMA surveys setting out finance directors’ views on the financial issues facing the NHS in England and, for the first time, we include views from finance directors in Scotland, Wales and Northern Ireland. It draws on the responses of finance directors and chief finance officers (CFOs) of 119 provider trusts, 64 clinical commissioning groups (CCGs) and eight area teams from across the English NHS; all six Health and Social Care trusts in Northern Ireland; five NHS Scotland Territorial Boards, one NHS Scotland Special Board and three Welsh Local Health Boards.

4. Financial outlook

5. The financial position across the NHS is deteriorating, according to latest figures
55% of FTs were in deficit at quarter 2. Acute trusts represent the majority of the deficit
FTs reported a £254m deficit at 30 September 2014, compared with a planned net deficit of £59m 
NHS trusts reported a £376m deficit as at 30 September 2014, compared with a planned net deficit of £317m 
26 NHS trusts (27%) are forecasting a year-end deficit, 24 are acute trusts
CCGs forecast a year-end overspend of £21m. 21 CCGs are forecasting overspends against plan as at 30 September 2014
In our first NHS Financial Temperature Check briefing we noted ‘the number of organisations that were overspending or reporting a deficit has increased since the 2012/13 financial year and more organisations reported a deficit than had planned to at the start of the 2013/14 financial year’. The most recently available financial data shows that NHS finances are deteriorating in all sectors.

6. 14/15 forecast positions are worse than 13/14 for many organisations and there is slippage from plan
Almost 40% of commissioner finance directors and 74% of trust finance directors are forecasting a worse 2014/15 year-end financial position than in 2013/14. 38% of commissioner and trust finance directors are also forecasting a worse 2014/15 year-end position than was originally planned at the start of the financial year. This indicates a rapid deterioration in the finances of nearly 2 out of 5 NHS organisations in our sample.
62% of commissioners finance directors and 50% of trust finance directors are quite confident in the accuracy of their organisation’s year-end financial forecasting. 18% and 26% respectively are very confident and 15% and 22% respectively told us it is too early to say.
1 in 5 trust finance directors told us they had been asked to submit a revised forecast by their regulator (either Monitor for FTs or the TDA for NHS trusts).

7. The main drivers of commissioners’ year-end forecasts are increased acute care costs and unachievable savings
Between 35% and 40% of commissioner CFOs and finance directors reported under-achievement of QIPP savings plans and an increase in acute trust programme costs as the main driver of their worsening financial position, closely followed by prescribing costs at 28%.

8. The main drivers of trusts’ year-end forecasts are increased costs and unachievable savings
Over 40% of provider trust finance directors reported the main drivers of the worsening year-end financial forecast are unforeseen increases in pay costs, allied with lower than expected savings from cost improvement plans.

9. Responses shows trusts’ pay costs are driven by high agency staff costs and increasing numbers of nursing and medical staff
Trust finance directors (82%) report that the main driver of their pay costs has been reliance on bank, agency and locum staff. 69% felt their organisations’ response to quality concerns, such as those raised by the Keogh and Francis reviews, have also driven pay costs.
Finance directors reported a wide range of factors driving their reliance on bank, agency and locum staff in addition to increasing demand including staff sickness absence, the increasing acuity of patients requiring higher staffing levels than in the past, challenges in recruiting staff in some areas or specialties and a lack of trainee medical staff available to fill training places.

10. The main cost pressures are around staff costs, increasing demand and continuing healthcare
A more general question about the main cost pressures in 2014/15 (rather than those that had increased unexpectedly, affecting the year-end forecast) revealed more detail. In trusts the pressure on pay costs is through increasing the number of nursing staff (reported by 65% of our sample of finance directors) and agency staff costs (82%). CCGs’ main cost pressures are continuing healthcare costs (72%) and the combined effect of increasing demand (61%), particularly in emergency care (70%) and slippage on QIPP savings, which are often associated with reducing demand (63%).
Compared with our June 2014 NHS Financial Temperature Check the results are similar. In June we found, for provider trusts, the top two cost pressures were the costs of increasing demand for services (72%) and the costs of increasing the numbers of nursing staff employed (71%). CCG CFOs named three cost pressures as being particularly significant: emergency care (86%), continuing healthcare (79%) and increasing demand (71%). Another significant cost pressure is increasing premia for the Clinical Negligence Scheme for Trusts.

11. Commissioners plan to use a range of mechanisms to deal with financial challenges
The majority of CCG chief financial officers (75%) intend to invest in community services and primary care (63%), with the intention of reducing costs in the secondary sector. They plan to do this in conjunction with integrating or redesigning community care pathways (73%), acute pathways (63%) or through Better Care Fund schemes (61%).
Area team finance directors intend to meet the challenges through redesign of their major service contacts (100%) and through the changes to primary care commissioning (63%), which are expected to see CCGs taking a more active role in area team decision making.

12. Providers intend to use a mixture of mechanisms to reduce costs and change the way services are provided
Trust finance directors intend to make making agency staff cost savings (87%) and procurement costs savings (83%) along with rationalising their estates (67%). They also expect to meet the financial challenges through changes to clinical services, such as reducing clinical variation in the services being provided (61%), redesigning pathways (61%) and reducing staff costs through the redesign (55%).

13. Providers and commissioners concerns about the financial health of their local economy are broadly similar
Finance directors’ main concerns are system management across the health economy (82% of commissioners and 78% of trusts), in other words, understanding who the people and organisations are in an area that have the influence to get consensus about the way forward and support change. Other shared concerns are about CCGs achieving QIPP savings plans (72%, 79%) and trusts achieving cost improvement savings (72%, 79%).
*Not asked in June survey

14. Quality of services

15. What changes do you anticipate in the quality of patient services provided by your organisation?
2014/15
44%
51% 6%
Quality of services
2015/16
45%
42%
13%
Despite being pessimistic about the financial position of the NHS for the current and future years, 94% of finance directors do not expect the quality of services to deteriorate in 2014/15 (92% in June 2014).
CCG CFOs are the most optimistic about improvements in quality, with 47% expecting quality to improve in 2014/15, rising to 67% in 2015/16.
Area team finance directors are the least optimistic about improvements in quality with 14% of finance directors expecting quality to improve in 2014/15 and no finance directors expecting quality to improve in 2015/16.
48% of provider FDs think that their organisation’s plans to make transformational efficiency savings are supported by the quality focus (55% in June 2014)
Figures do not sum to 100% due to rounding.

16. Access to services and waiting times are considered most vulnerable aspects of quality
While the majority of finance directors did not expect quality to deteriorate in their own organisations, they gave their views on which aspects of service quality are most vulnerable as a result of the current financial challenges.
Trusts and commissioners both identified access to services and waiting times as the most vulnerable areas. There was also consistency on the least vulnerable area - patient safety. This picture is consistent with our June 2014 survey.

17. Integration and the better care fund

18. There is scepticism about the benefits of integration and the better care fund
12% of trust finance directors and 13% of CCG CFOs think the better care fund will help to improve their organisations’ services for patients and service users in the first year, rising to 40% and 76% respectively within one to three years and to 62% and 86% respectively after three years. CCG CFOs are more optimistic than trust finance directors.
This picture is more positive than in our June 2014 survey. Trusts are significantly more positive about whether the better care fund will help to improve services after its first year.

19. Finance directors have doubts the better care fund will bring financial benefits
10% of trust finance directors and 11% of CCG CFOs think their organisation will benefit financially from closer integration of services (including the better care fund) in the first year, rising to 26% and 39% respectively within one to three years and to 34% and 65% respectively after three years. CCG CFOs are again more optimistic than trust finance directors.
Overall respondents are more confident that the fund will lead to better services for patients and service users than they are that there will be financial benefits.

20. Finance directors are not confident planned benefits of better care fund will be achieved
Only 2% of trust finance directors are confident that the benefits set out in the better care fund plans will be achieved, compared to 4% in June CCG CFOs are more confident, with 34% reporting that the benefits will be achieved, the same figure as reported in June.
64% of trust finance directors reported that they had been party to planning discussions about the fund. While this is an increase on the 53% reported in our June 2014 survey, it is still disappointing.
69% of CCG CFOs reported that they have other plans for integrating services in addition to the better care fund plans.

21. System leadership

22. Finance directors have different views about who provides the system leadership
In our June 2014 survey several finance directors cited a lack of system leadership within their health economies as hampering service transformation and integration. Consequently HFMA published a discussion paper on System Leadership in the NHS.
Finance directors continue to have concerns about the lack of system leadership in their local health economies. Finance directors reported all of the organisations playing a leadership role in their areas. Of the area team finance director responses, most identified more than one organisation as being the main system leader. 27% of total responses were for the area team and 20% for the CCG. CCG CFOs identified the CCG as main system leader (32%) as a proportion of their total number of responses and trust finance directors identified the trust (30%) and CCG (27%) as the main system leader.

23. Five year plans

24. Finance directors are not confident about the assumptions underpinning years 3 to 5 of their five year plans.
Only 14% of trust finance directors and 13% of CCG CFOs are totally confident about the assumptions underpinning years 1 and 2 of their five year plans. The picture worsens for years 3 to 5 of the plans, with provider finance directors being less confident than CCG CFOs.
We also asked area team finance directors how confident they were about the accuracy underpinning the plans of the CCGs in their area. They were less confident than CCGs, particularly in years 3 to 5 with 87% of area team finance directors scoring their CCGs 4s and 5s (the ‘not confident’ end of the range).

25. Not all plans have been fully agreed by commissioners and providers
Only 11% of trust and 30% of CCG strategic plans have been agreed by all parties within the health economy. Most were partially agreed, 16% of trust and 5% of CCG plans were not agreed at all.

26. Confidence in the achievability of the five year plans is low
No finance directors are very confident that their organisation’s 5 year plan can be achieved and only 15% of CCG CFOs and 12% of provider finance directors are quite confident.

27. Confidence is higher for the first 2 years of the plans
Unsurprisingly, finance directors are more confident that the first two years of the plan are achievable, with 56% of trust finance directors, 67% of CCG CFOs being either very or quite confident that the first two years of their plans are achievable.
Area team finance directors were more pessimistic than CCG CFOs on the achievability of CCG plans.

28. What can be done to help the financial pressures?

29. What do finance directors think needs to change?
Finance directors outlined actions to help reduce financial pressure:
Faster progress on service transformation
More realistic financial settlement and efficiency requirement
Clear system leadership
Improved national workforce planning
Caution around better care fund implementation
Changes to the national payment system
We asked finance directors for their top three actions to help reduce financial pressures in their health economies.
In line with estimates from NHS England, most recently in its Five Year Forward View, finance directors called for a more realistic financial settlement for the NHS.
Many also suggested that the year-on-year efficiency requirement, in the region of 4%, was no longer achievable and a more realistic efficiency requirement should be set.
Nearly all finance directors wanted to see faster progress on the transformation of services across organisations and displayed frustration that a lack of system leadership was making it more difficult to achieve.
Unsurprisingly, given the increase in staffing costs and the difficulty NHS organisations are having recruiting medical and nursing staff, finance directors suggested that there needs to be better national workforce planning and training.
A small number questioned whether the better care fund should be implemented. Some were concerned that the fund was being used to supplement reducing local authority budgets.
Several finance directors suggested that the national payment system should be revisited and that tariffs should be abandoned in favour of a return to cost and volume or block contracts.

30. What are the HFMA’s views?
More funding is required to enable the transformation of the NHS
Faster progress on large transformation schemes is essential and requires system leadership
National workforce planning and training requires improvement
Rapid progress is needed on the reform of payment systems in order to support new models of care
It has been widely reported that unless action is taken the NHS is facing an annual funding shortfall of £30 billion by 2020/21. The Forward View proposes ways of reducing this shortfall and keeping the NHS as a comprehensive tax funded system. We fully support this and agree that it is possible to reduce demand by, amongst other things, improving health prevention and to increase efficiency, principally by moving to new models of care. However it will only be possible to improve these areas if the NHS receives above inflation funding levels.
A key message from finance directors is that service transformation and integration need to happen faster but progress is being hampered. To move faster finance directors are calling for strong system leadership to support organisations to develop the right solution for their area, based on clinical evidence and supported by the public, politicians, patients and employees.
The majority of trust finance directors have reported concerns about increasing staff costs and this has been a major factor in the deterioration of financial performance. The costs are largely as a consequence of needing to recruit extra medical and nursing staff as part of their organisations’ response to quality concerns, such as those raised by the Keogh and Francis reviews.
The current payment system was developed when undertaking increasing levels of activity was encouraged in order to reduce waiting times. Times have changed and the view of some finance directors is it is no longer fit for purpose. If we are to move to the different models of care set out in the Forward View, new payment models will need to be developed.

31. Four nations

32. In common with the English NHS, NHS finances in Scotland, Wales and Northern Ireland are deteriorating
The four nations each have slightly different financial rules about reporting a surplus or deficit but it is clear finance directors across the UK expect to their financial position in 2015/16 to be worse than in 2014/15.

33. The year-end financial position will be worse in many organisations compared with 2013/14 and 2014/15 plans
Although the responses from Scotland, Wales and Northern Ireland may be skewed by the small sample size (although similarly representative of the overall number of finance directors in each nation) there is a similar trend.

34. Finance directors plan to use a range of mechanisms to deal with financial challenges
Finance directors plan to use a range of mechanisms to deal with their financial challenges. Those most commonly shared across the UK including savings arising from reducing unnecessary clinical variation and reducing spending on agency staff costs.

35. The majority of finance directors expect quality to stay the same, or improve
While we do not have comparable data on the quality of services in each of the four nations the majority of finance directors expect quality to stay the same in 2014/15, except in Wales, where there is high degree of confidence quality will improve.