Hospital finances risk becoming unsustainable as savings drive continues, Nuffield Trust warns

Many hospital trusts face severe and potentially unsustainable financial pressures, warns a Nuffield Trust submission to the Health Select Committee. The think tank draws together official figures to show that these pressures are concentrated in smaller hospital trusts and those without foundation status, and in the West Midlands and outer London.

These pressures have been partially masked by hospitals being given ‘non-recurrent’ support to achieve financial balance. The Nuffield Trust argues that the Government must think about how to deal with a situation in which hospital trusts could start becoming unsustainable in larger numbers than the current system is designed to address.

Although pay restraint and management cuts have created large savings, these cannot close the long-term funding gap without threatening the quality or sustainability of care services Anita Charlesworth, Chief Economist, Nuffield Trust

While the NHS has met unprecedented targets for financial savings since 2010/11, these have been delivered through pay restraint, reductions in the prices paid to hospitals, and management cuts. However, our research shows no evidence of a step-change in productivity which could enable the NHS to be able to do more for less at a rate which would meet savings targets.

The Nuffield Trust submission to the Health Committee reports that:

• At the end of July 2013, almost half of non-foundation acute trusts are forecasting a deficit for 2013/14 (31 organisations; 48 per cent of the total). The aggregate net position for all these trusts is forecast at a deficit of £232 million for the financial year.

• Crucially, margins for earnings before interest, taxes, depreciation and amortisation (known as ‘EBITDA’) are falling across all types of trust except specialist foundation trusts (adjusted for non-recurrent support).

  This is a crucial indicator of whether, in this instance, a hospital is financially viable. 43 (42 per cent) of non-foundation NHS Trusts ended 2012/13 below the five per cent Monitor would normally require to grant foundation status. A further 40 foundation trusts were also below this benchmark, meaning that about a third of all trusts were in a relatively weak financial position.

  The submission states that it will be difficult to find clinically and financially sustainable futures for an increasing number of providers of hospital, community and mental health care that face a difficult financial future.

• Turning to the levels of productivity improvement required, recent Nuffield Trust research on 110 English hospital trusts suggests that the rate of productivity growth has not improved since the beginning of the Quality, Innovation, Productivity and Performance savings initiative in 2010/11. Better productivity is therefore unlikely to account for savings at the levels planned.

• Meanwhile, despite successive governments aiming to provide better care for less by treating people outside hospital, this does not appear to be happening. Spending on the hospital sector continues to rise while GPs have seen cuts in real terms. Although reducing emergency admissions has been a key priority, the most recent figures show that they are increasing.

• The submission also warns policy-makers not to rely in the short term on savings delivered through community-based interventions designed to shift care out of hospitals and, in the process, reduce emergency hospital admissions. A number of evaluations conducted by the Nuffield Trust show very limited evidence of these schemes reducing emergency hospital admissions in the short term.

Nuffield Trust Chief Economist, Anita Charlesworth said:

“The NHS faces an unprecedented challenge in finding savings of four per cent each year. This will be difficult to achieve through productivity improvements and there are no clear signs of initiatives so far making savings by reducing emergency admissions to hospital.

“Meanwhile, although pay restraint and management cuts have created large savings, these cannot close the long-term funding gap without threatening the quality or sustainability of care services.

“We need to monitor the signs that this challenging situation could lead to an unsustainable financial squeeze on hospital trusts. Recent figures show that smaller hospital trusts and those which still have to become foundation trusts face particular difficulties.

“The weakest hospital trusts appear to be getting weaker but will still face pressure to increase spending following the Francis Inquiry and initiatives such as “seven-day” working. Policy-makers need to think about how they can deal with the situation.”