NAO report highlights funding squeeze on NHS bodies, including A&E departments

On 7th November the National Audit Office published a report entitled "The financial sustainability of NHS bodies".

The full report is 62 pages long. The executive summary is 8 pages. I highlighted important conclusions in bold face below.

The NAO finds that the financial position of most NHS Trusts, and especially the Foundation trusts, is getting worse and that the financial risk is increasing.

The first reason given for this is that "providers and commissioners in financial difficulty have not matched pressures on funding with equivalent reductions in spending". In other words they both overspend because they find it impossible to drive a hard bargain.

The second reason is extremely material to our campaign. "Despite payment for emergency admissions at a 30% marginal rate, demand continues to increase". It continues: "Trusts are paid at a marginal rate of 30% of the full tariff [true cost] for all emergency admissions above a baseline set from the number of admissions in 2008-09. The Department introduced this payment method to discourage unnecessary emergency admissions. We reported in October 2013 that emergency admissions had increased in 62% of trusts since the introduction of the marginal rate for emergency admissions. Case study trusts told us that demand is increasing, and it is not always possible to discharge patients into the community in a timely way. All the acute trusts we spoke to told us that payment for emergency admissions did not meet their costs. In practice, payment at the marginal rate may not give commissioners strong enough incentives to make alternative community care available. Increasing demand for emergency admissions will also reduce the resources commissioners have to invest in alternative primary or community care (paragraph 2.7)

This deliberate underfunding of emergency admissions has not made the emergency admissions "go away"! It has in fact made it MORE difficult to fund alternatives in the community.


Under "Managing Financial Risks", the report notes "NHS trust and foundation trusts under financial stress continue to rely on cash support from the Department [of Health]. In 2013-14 the Department issued £511 million cash support to 21 NHS trusts and 10 foundation trusts in the form of revenue-based public dividend capital (PDC) [long-term finance initially offered to trusts to enable them to buy their assets from the DH]. This is an increase of £248 million compared with 2012-13. The Department provides revenue-based PDC so that organisations in difficulty have the cash they need to pay creditors and staff. Since 2006-07, the Department has issued a total of £1.8 billion revenue-based PDC, of which £160 million has been repaid. 

Financial plans submitted by commissioners and providers covering the 2 years 2014-15 and 2015-16 have had to be revised and 2015-16 are not yet finalised.

There remains considerable uncertainty about the impact on 2015-16 plans of initiatives such as the Better Care Fund, which both the Department and NHS England expect to reduce demand for acute hospital services. We will revisit this planning process for commissioners and providers in 2015, when relevant data will be more stable".

The "Independent" ran the headline "NHS facing £700m black hole over failing Better Care Fund" based on this aspect of the NAO report.

"Relationships between local bodies are not mature, and it is not clear where responsibility for strategic change will lie. Commissioners and providers told us the new structure felt fragmented, particularly at regional level. Senior staff we interviewed in NHS trusts and foundation trusts thought no organisation was responsible for taking a strategic view across the whole local health economy, but they were trying to bring about the transformational changes needed".

The lack of planning at regional level has been apparent ever since Strategic Health Authorities were abolished in 2013.

"These trends are not sustainable. An increasing number of providers and commissioners are in financial difficulty".

The NAO suggests solutions including tapering "cash top-ups" to providers in trouble, long-term better planning (including chasing laggards) and stronger direction to be exercised by NHS England.

In terms of Value for Money: "Until the Department explains how it will work with NHS England, NHS TDA [Trust Development Authority] and Monitor [regulates foundation trusts] to address the underlying financial pressures, quickly and without recourse to annual cash support, we cannot be confident that value for money, in terms of financial and service sustainability, will be achieved over the next 5 years".