NHS Financial Temperature Check

Finance directors views on the financial

challenges facing the NHS, December 2014

Introduction
This is the second in a series of
HFMA briefings setting out finance
directors views on the financial
issues facing the NHS. It draws
on the responses of finance
directors and chief finance
officers (CFOs)1 of 119 (49%)
provider trusts, 64 (30%) clinical
commissioning groups (CCGs) and
eight (32%) area teams from across
the English NHS.
For the first time, we asked finance
directors in Scotland, Wales and
Northern Ireland for their views
and received responses from 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.
A comparison of the financial
performance of NHS bodies in
England, Northern Ireland, Scotland
and Wales and a comprehensive
analysis of the English results
can be found at www.hfma.org.uk/
nhstemperaturecheck

Financial performance
The financial performance of the
NHS in England is deteriorating
across all sectors. The most recent
reports from national agencies and
regulators show that:

Quality of services
Despite the deterioration of financial
performance across the NHS and
pessimism about future performance,
finance directors are optimistic that
quality will not be affected:

l 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 59m2.
l NHS trusts reported a 376m
deficit at 30 September 2014,
compared with a planned net deficit
of 317m. Some 26 NHS trusts
(27%) are forecasting a year-end
deficit, 24 are acute trusts3.
l CCGs forecast a year-end
overspend of 21m (0.0%), with 21
(10%) CCGs forecasting overspends
against plan as at September 20144.

l 94% of finance directors do not

expect the quality of services to
deteriorate in 2014/15 44% expect
the quality to improve and 51%
expect it to stay the same (rounded
figures).
l 6% of finance directors expect
the quality of services to deteriorate
in 2014/15 and this rises to 13% in
2015/16.
l While the majority of finance
directors do not expect quality to
deteriorate, the most vulnerable
areas identified were access to
services and waiting times.
l 50% said the focus on quality
helped to support transformational
change, while 42% said it was made
more difficult and 8% said they did
not know.

In all, 39% of commissioner finance

directors and 74% of trust finance
directors are forecasting a worse
2014/15 year-end financial position
than in 2013/14 (chart 1 overleaf).
And 38% of commissioner and trust
finance directors are forecasting a
worse 2014/15 year-end position
than planned at the start of the
financial year. This indicates
a rapid deterioration in
the finances of nearly
two out of five NHS
organisations in our
sample.

1 CCGs use the terminology of chief finance officer (CFO),

whereas NHS trusts, FTs and area teams generally use
finance director. In this briefing we sometimes use the term
finance director to mean both finance directors and CFOs
together, when describing the views of all of our survey
respondents collectively.
2 www.gov.uk/government/publications/nhs-foundation-trustsquarterly-performance-report-quarter-2-201415
3 www.ntda.nhs.uk/wp-content/uploads/2014/10/PaperD-Service-and-Financial-Performance-Report-forSeptember-2014.pdf
4 www.england.nhs.uk/wp-content/uploads/2014/10/item4board-1114-fin.pdf

Summary

Summary: NHS Financial Temperature Check

Chart 1: 2014/15 year-end

forecast position compared
with 2013/14 year-end and
the planned year-end
position for 2014/15

n better

n same

n worse

80
70
% of finance directors

60
50
40
30
20
10
0

commissioner
trust
14/15 forecast compared with 13/14

commissioner
trust
14/15 forecast compared with 14/15 plan

Cost pressures
There is no single factor leading to the deterioration in NHS finances. Trust finance directors reported the main drivers
of the worsening year-end financial forecast are unforeseen increases in pay costs and lower than expected savings
from cost improvement plans. Commissioner CFOs and finance directors reported the under-achievement of Quality,
Innovation, Productivity and Prevention (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.
Pay costs
Increasing pay costs are a significant contributor to trusts worsening financial performance. Trusts pay costs and
workforce decisions are being driven largely by their response to improving quality and the availability of medical and
nursing staff. Chart 2 shows that, when asked to identify the main drivers of pay costs, 82% of trust finance directors say
the main driver of their pay costs has been reliance on bank, agency and locum staff. And 69% report their organisations
response to quality concerns, such as those raised by the Francis and Keogh reviews, have driven pay costs.

Integration and the better

care fund
Finance directors are sceptical
about the benefits of integration and
the better care fund, particularly in
the early years. However, the picture
is more positive than in our June
2014 survey, trusts in particular
are more positive:
l 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.
l 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.
l Only 2% of trust finance directors
are confident that the benefits set out

in the better care fund plans will be

achieved, compared with 4% in
June 2014. CCG CFOs are more
confident, with 34% reporting that the
benefits will be achieved, the same
figure as reported in June.
l 69% of CCG CFOs reported that
they have other plans for integrating
services in addition to the better
care fund plans.
System leadership
Finance directors continue to have
concerns about the lack of
leadership in their local health
economies and the impact it has
on transformation and integration.
We asked finance directors which
organisations provided system
leadership in their health economy.
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% were for the CCG.

CCG CFOs identified the CCG as
main system leader (32%) and trust
finance directors identified the trust
(30%) and CCG (27%) as the main
system leader, though 10% of trust
responses were none of the above.
This underlines the perceived lack
of system leadership in the NHS
following the restructuring in 2013.
Five-year plans
Finance directors have concerns
about their organisations plans:
l 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.
l Just 11% of trust and 30% of CCG
strategic plans have been agreed by
all parties within the health economy.
Most were partially agreed, with 16%
of trust and 5% of CCG plans not
agreed at all.
l No finance directors are very
confident their organisations

90
80
% of finance directors

Chart 2: What are the main

drivers of pay costs in trusts?

70
60
50
40
30
20
10
0

reliance on
response
staff
CQC
bank, agency, to quality
turnover
reports
locum staff
concerns

(Keogh/Francis

reviews)

local
market
forces
factors

redesign
of jobs

Mechanisms to address the financial challenges

Finance directors told us how they plan to deal with cost pressures and meet the financial challenges ahead. The top
priorities for trust finance directors are to make agency and procurement cost savings, estates rationalisation, reducing
clinical variation and reducing staff costs through the redesign of jobs. CCG CFOs intend to invest in community services
and primary care and to integrate and redesign care pathways.
Main concerns across health economies
We asked respondents to outline their main concerns about the financial position of their local health economy. The
concerns are largely shared by commissioners and providers and are the lack of system management across the health
economy and the achievability of CCG QIPP plans and provider cost improvement plans.

five-year plan can be achieved and

only 15% of CCG CFOs and 12% of
provider finance directors are quite
confident.
l Unsurprisingly, finance directors
are more confident the first two
years of the plan are achievable,
with 56% of trust finance directors
and 67% of CCG CFOs being
either very or quite confident that
the first two years of their plans are
achievable.
We asked finance directors what
extra support would be required to
help organisations deliver their
five-year plans. Responses focused
on political support, proactive
system leadership, faster
transformation of services, better
national workforce planning, reduced
efficiency targets, certainty of
allocations and increased revenue
and capital funding.

What can be done to help the

financial pressures?
We asked finance directors to tell us
what top three actions would help
reduce financial pressure in their
health economy. They recognised
there were no easy answers.
Alongside an increase in NHS
funding levels the most frequently
suggested points were:
l Faster progress on clinically led
service transformation and integration
l Improved system leadership
within health economies to help drive
transformation
l A reduction in efficiency
expectations
l Better partnership working across
all organisations in the health
economy, including economy wide
integration plans
l Improved national workforce
planning and training
l Less focus on competition and
more on collaboration
l Changes to the payment system to
support new ways of working.

We asked finance
directors to tell
us what top three
actions would help
reduce financial
pressure in their
health economy.
They recognised
there were no easy
answers

4 Summary: NHS Financial Temperature Check

The HFMAs views on what needs to happen

Financial pressure is being felt across the NHS and in
organisations that have not experienced financial difficulty
in the past. While most finance directors do not expect
quality to be compromised, there are signs of strain.

patients and using limited resources for the greatest good,

even if their own organisations do not benefit directly.
There needs to be collective responsibility across
organisations to incentivise managers to understand that
if one organisation fails then every organisation fails.

There has been a swift deterioration in the financial

position during 2014/15 and the picture looks even
bleaker for 2015/16. It is clear that the current level of
funding is not sufficient to sustain the NHS in the way it
currently operates. There is a real risk that the NHS in
England will be in deficit for the first time since 2005/06.

l National workforce planning must be improved

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. However,
trusts are finding it difficult to recruit to the posts and
have incurred additional costs as a result of having to use
agency staff. This is a widespread problem that individual
trusts cannot solve. In our view the current national
system of workforce planning and training is not working
and needs to be reviewed.

NHS Englands Five-year forward view (FYFV), released

in October, sets out the future of the NHS. It is a vision
that is firmly supported by the HFMA. The NHS needs to
move to new models of care in order to provide a better
service for those that use it and also to provide better
value for taxpayers. Doing nothing is not an option and
the period following the general election in May 2015 will
be a critical time to cement plans to increase the pace of
change. We suggest four areas should be focused on so
that the vision set out in the FYFV can be achieved.
l More funding is required to enable transformation
It has been widely reported that unless action is taken
the NHS faces an annual funding shortfall of 30bn by
2020/21. The FYFV proposes ways of reducing this
shortfall and keeping the NHS a tax-funded system.
We fully support this and agree that it is possible to
reduce demand by, among other things, improving health
prevention and increasing 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. We recognise that increasing NHS funding is a
difficult proposition, given the current economic climate,
but it is essential to support the transformation that must
happen. Finance directors are clear that a constructive
debate is needed with the public and politicians about the
financial challenges facing the NHS, the need for change
and increased funding.
l Faster progress on large transformation schemes
is essential and requires system leadership
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.
This leadership can come from within existing
organisations. Finance directors are not calling for
further reorganisation but system leaders will require
the support of politicians to help drive change.
Finance directors will need to work with board colleagues
and clinicians to prioritise achieving the best outcomes for

l Payment systems need to change

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 that it is no
longer fit for purpose. If we are to move to the different
models of care set out in the FYFV, new payment models
will need to be developed. Care will be provided across
organisational boundaries and in new ways as technology
is increasingly used.
Different approaches will develop according to local
requirements and the role of GPs and primary care is
expected to significantly change. Work is already under
way to develop the payment model so that it supports
new models of care and
is fully supported by
the HFMA, but
we need to
move
faster.

The authors of this summary were

Richard Edwards (HFMA research manager) and
Emma Knowles (HFMA head of policy and research)
Healthcare Financial Management
Association 2014. All rights reserved
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