1. HFMA NHS Financial Temperature Check
Finance directors’ views on financial challenges facing the NHS:
July 2015

2. Introduction
Summarises results of HFMA’s third NHS financial temperature check survey of NHS finance directors, published July 2015
Includes views of sample from all UK finance directors working in English CCGs and provider trusts and devolved nation NHS bodies
Survey collected views during May 2015
First briefing published June 2014

3. Response rate was high, covering nearly half of English trusts and two fifths of CCGs
Organisation type
CFO responses to survey
Org responses to survey
% CFO responses
% org responses
CCGs 70 79
41%
37%
Combined NHS trusts/ FTs
117
47%
Scotland 2
13%
Wales 4
44%
Northern Ireland 5
71%
This is the third in a series of HFMA surveys setting out finance directors’ views on the financial issues facing the NHS in the UK. It draws on the responses of finance directors and chief finance officers (CFOs) of 117 provider trusts, 79 clinical commissioning groups (CCGs) four Health and Social Care trusts and the Health and Social Care Board in Northern Ireland; two NHS Scotland Territorial Boards and four Welsh Local Health Boards.

4. Financial Performance

5. The financial position across the NHS is deteriorating, according to latest figures
There is a combined net deficit of £822m in the English provider sector
NHS foundation trusts (FTs) reported a £349m deficit for the year-ending 31 March 2015, compared with a planned net deficit of £10m. 77 of the 152 (51%) FTs reported a deficit.
The NHS trust sector reported an aggregate net deficit of £473m, compared with a planned net deficit of £408m. 40 of the 99 (40%) NHS trusts reported a deficit, with a combined gross deficit of £614m.
Across the 211 CCGs, there was a small underspend of £151m (0.2% of allocation).
The financial performance of the NHS in England continues to deteriorate across all sectors. There is a deficit overall in local NHS organisations and the small underspend in CCGs does not cover the net deficit in the English provider trust sector.
The outturn figures reported by NHS England, Monitor and the Trust Development Authority (TDA) make it clear that there is financial pressure across the NHS. The most severe deficits are in the acute sector. Of the combined net deficit of £822m in the English provider sector, £599m is attributable to 54 acute FTs and £536m to 36 acute NHS trusts. The aggregate acute sector deficit of £1,135m is offset by surpluses in the non-acute sector.
According to NHS England, the CCG ‘position benefitted from significant one-off items which have materially contributed to the underspend. Excluding these items, there was a small net overspend within the CCG sector’.

6. In the majority of CCGs the 2014/15 year-end outturn was the same or better than budget. In the majority of English trusts and Welsh bodies it was worse
Analysis of our survey responses found that in the majority of CCGs the 2014/15 year-end outturn was the same or better than budget. But in the majority of English provider trusts and Welsh trusts and local health boards (LHBs) it was worse. Over 50% of finance directors in these organisations reported a worse year-end position than was planned.

7. In trusts the main drivers of the difference between plan and outturn were an increase in agency costs and under-achievement of savings plans  
We asked respondents to tell us the causes for the main variances between outturn and plan in 2014/15. In trusts the main drivers were an increase in agency staff costs (72%), in many cases driven by Care Quality Commission recommendations, and under-achievement of planned savings (55%), leading to adverse performance against plan. However, some trusts improved their performance against plan. The main drivers for this include increased activity and other non-recurrent items, such as TDA funding, which make it important to understand the underlying financial position as well as the reported position. Chart 2 summarises the main responses.
The reasons remain consistent with our previous surveys. In December 2014 we found that, ‘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’. The proportion of finance directors reporting these cost pressures has therefore increased since December 2014.

8. Although most CCGs achieved or improved on planned performance, CFOs considered the main drivers of variance to be programme cost increases or savings slippage
Although most CCGs achieved or improved on planned performance, CFOs considered the main drivers of variances to be programme cost increases (66%) or slippage on planned savings (53%). In their detailed comments CFOs identified growth in costs relating to continuing healthcare claims as well as contract over-performance by provider trusts in all sectors as additional cost increases. Chart 3 summarises the responses.
These responses are consistent with our survey in December 2014 but the proportion of CFOs reporting these cost pressures has increased. In our previous survey the figure was 35% for both drivers.

9. The majority of contracts remained unsigned at the time of our survey
Were all contracts signed by date of survey response?
Were all contracts signed by 31 March 2015? No
Yes
CCG
68%
32%
93% 7%
Trust
58%
42%
90%
10%
The majority of contracts between commissioners and providers in the English NHS remained unsigned at the time of our survey. Some respondents told us that contracts had been agreed but simply not signed. Other reasons for not signing contracts included disputes about activity levels, leading to formal arbitration, or with agreeing local tariff arrangements.

10. In 2015/16 there is a clear trend showing trusts are forecasting a deficit and CCGs are forecasting a surplus
In 2015/16 there is a clear trend showing English trusts are forecasting a deficit and CCGs are forecasting a surplus in their plans, as shown in Chart 4.
63%  of English trusts are forecasting a deficit at the 2015/16 year-end. The responses for the 2016/17 financial year show that more trusts are forecasting a surplus but the distinction between the financial position of CCGs and trusts remains clear-cut. The forecast improvement in trusts’ financial performance in 2016/17 may be attributable to finance directors’ expectations that financial recovery plans will address financial difficulties brought forward from 2014/15. However, trusts will often revise their medium-term financial plans closer to the beginning of the actual financial year.

11. Analysis by sector of the forecast 2015/16 financial position in English provider trusts shows the majority of deficits are in acute trusts
Sector
Deficit
Break-even
Surplus
Acute
77% 9%
14%
Acute and community
85% 0%
15%
Acute and specialist
81% 8%
12%
Ambulance
33%
Community
100%
Community and mental health
29%
21%
50%
Mental health
43%
57%
Specialist
25%
Within English trusts the majority of the English trusts forecasting a deficit are in the acute sector, while community trusts are relatively financially sustainable, based on our survey responses.

12. In all sectors except the Welsh NHS, the most common response was the 2015/16 year-end forecast position is worse than the 2014/15 year-end financial position
In all sectors except the Welsh NHS, most respondents told us their organisation’s forecast 2015/16 year-end position is worse than the 2014/15 year-end financial position. In our December 2014 survey we found that 39% of commissioner finance directors and 74% of trust finance directors were forecasting a worse 2014/15 year-end financial position than in 2013/14, which is consistent with the current figures and the continued deterioration in NHS bodies’ finances.

13. Few respondents feel there is a low risk to achieving their financial plans for 2015/16
The majority of respondents reported the degree of risk associated with achieving their organisation’s 2015/16 financial plan as either high or medium. In England, only 16% of CCG and 10% of trust finance directors reported there being a low risk to achieving their financial plans.
The key risks to achieving financial plans were identified as slippages in cost savings (74%), increased demand (64%), emergency activity (55%) and spending on agency staff (50%). The perceived risk to achieving financial plans increases for 2016/17, with the majority of respondents reporting having plans with a high level of risk.

14. CCGs are planning integration, pathway redesign, investment in primary care and greater clinical standardisation to meet financial challenges
We asked finance directors about the main mechanisms they plan on using to meet the financial challenges ahead. CCGs are planning integration of services with other NHS organisations (80%), integration with social care (76%) and investment in primary care (68%).

15. To meet financial challenges trusts are planning to make savings on agency staff costs, procurement and estates costs as well as greater integration
To meet financial challenges in trusts, finance directors are planning to make savings on agency staff (87%), from procurement costs (81%) and by reducing unnecessary clinical variation (60%).
Respondents from Northern Ireland are primarily planning redesigned acute pathways (80%), procurement savings (60%) and agency cost savings (60%) to meet financial challenges. In Wales respondents are planning clinical standardisation (100%), investing in community services (75%), integration across sectors (75%), acute sector pathway redesign (75%), and agency staff cost reduction (75%). In Scotland respondents are planning integration and redesigned pathways across community, mental health and acute services (100%), investing in community services (100%) and reducing pay costs spent on agency staff (100%).

16. The vast majority of organisations’ final 2015/16 financial plans have been submitted to the regulator or relevant national body
The majority of finance directors agreed that their organisations’ stability depends upon working jointly with other organisations. Respondents provided additional details about barriers to joint working. Some CCG CFOs feel they have limited influence on the cost of unplanned demand in provider organisations. Some also feel that provider trusts can become financially challenged as a result of conflicting priorities. For instance, national policy changes issued after local plans have been agreed have caused uncertainty in health economies. Respondents also identified barriers to finding local solutions due to a perceived lack of a coordinated approach to system management and sustainability by different regulators.
Some provider trust finance directors feel the scale of their funding can determine the success, or otherwise, of their attempts to influence decision-making in their health economy - they cannot effect change unless they are the largest organisation. Trust finance directors agreed with their CCG counterparts the lack of a single voice across the system from regulators impacts directly on local reconfiguration. Respondents recognised that improvement to services requires joint working and collaboration. However, the size of deficits in some acute trusts can lead finance directors to make decisions that prioritise the interest of their organisations above those of the health economy, to avoid jeopardising their own financial positions. One respondent suggested the solution is CCGs and trusts ‘breaking the rules together’, to work more innovatively and address financial problems at the health economy level.

17. Quality of Services

18. In 2015/16 respondents do not expect quality of services to deteriorate and in Wales they expect quality will improve
Despite being pessimistic about the financial position of the NHS for the current and future years, 92% of all finance directors do not expect the quality of services to deteriorate. 66% think that quality will stay the same and 26% think that it will improve.

19. What is the outlook?

20. Respondents felt within their organisations they probably have sufficient levers to improve quality and financial performance, with the exception of Northern Ireland
Respondents reported they probably had sufficient levers within their organisations to improve quality and financial performance, with the exception of Northern Ireland.

21. There is less confidence in CCGs and trusts, however, when asked whether they have sufficient levers to effect change in their local areas
Finance directors are much less confident about whether they have sufficient levers to effect change in their local areas though. There is a view from respondents overall that there is a weakness in strategic system management, which echoes findings in our previous surveys about system leadership. Some respondents felt there are multiple strategic influences in the system, which increases the risk organisations feel the need to work in silos. Further, the regulatory regimes applying to CCGs and providers can conflict.
Some CCG respondents felt, despite having sufficient levers, national and local guidance can conflict and this can remove their ability to do things differently. For instance, the national payment system can provide disincentives for organisations to work together. One trust finance director felt CCGs do not have the levers necessary to implement plans and that Monitor protects the FT sector from system change.
Our survey found only 4% of respondents from CCGs felt they definitely have mechanisms to improve the quality and financial sustainability within their local area. Northern Ireland respondents acknowledged fixed pay scales for medical staff, nursing staff, and fixed staffing numbers generally are such a large element of system wide cost which makes their financial performance difficult to influence. Respondents in Wales feel they have sufficient levers but do not have sufficient clarity about how service reconfiguration will be funded.

22. When asked if organisations in their area had sufficient resources for their long-term plans only Scottish respondents said yes
We asked respondents, ‘do the organisations in your area have sufficient baseline financial resources available to implement long-term financial plans without additional support?’.
The majority of finance directors responding to our survey do not believe the organisations in their area have sufficient resources to support their long-term financial plans. That sentiment is strongest in English trusts (92%) and in Northern Ireland (80%). The picture in Scotland was different, where both Scottish respondents believe they do have sufficient resources.

23. Respondents in Wales and Northern Ireland support integration of health and social care ('devo Manc' proposals). English respondents are more cautious
A major policy development in the English NHS has been proposals for integrating health and social care in the Manchester area, known as 'devo Manc'. Respondents in Wales and Northern Ireland generally support the approach but English respondents were more cautious.

24. Opinion is split among finance directors about whether structural reconfiguration will occur in the next 12 months
Alongside integration of health and social care we asked respondents for their views about whether there would be structural reconfiguration of the organisations in their area over the next 12 months. The chart shows that opinion is split, suggesting a degree of uncertainty.

25. Actions to help finance directors meet financial challenges
Finance directors suggested:
changes and improvements to the national payment system in England
more realistic savings targets
greater integration of services specifically more progress on the Better Care Fund in England
improved joint working and collaboration
honesty about services that can be provided within the financial settlement
We asked respondents to tell us what actions would be of most help to meeting the financial challenges in their areas. The responses were varied, covering national and local issues. Recognising that organisations are struggling to achieve savings many finance directors felt that more realistic savings targets would be required to help avoid further deterioration in organisations’ finances. Respondents felt that savings could be achieved in part by actions to reduce agency staff costs and staff costs in general. Secondly, respondents suggested more realistic expectations for reducing activity be set in Better Care Fund plans and other plans for integrating services across health and social care organisations. 
As with previous surveys, many finance directors suggest changes and improvements to the national payment system in England would help alleviate financial pressure. Some suggest addressing the purchaser-provider split in England and the system of regulation that surrounds it.
Finance directors also called for greater integration of services, specifically more progress on the Better Care Fund in England. This is a slight shift in position from our previous survey when we found that some finance directors were questioning the feasibility of the Better Care Fund as potentially too high risk to achieve its objectives. Allied to this, finance directors saw the need for improved joint working and collaboration, in particular to reduce demand, especially emergency admissions.
Finally, finance directors continue to call for honesty from politicians with the public about services that can be provided within the financial settlement agreed for the NHS.