NHS finances: cuts get real

NHS finances: cuts get real

The NHS has gone into 2024-5 facing a tough financial situation and both systems and trusts are being asked to make headcount reductions and cuts. ‘Back office’ functions like IT are in the firing line.

However, as the country heads into a general election in which health and social care will be key issues, this is a strategic mistake, the Highland Marketing advisory board argued. Digital is integral to safe, efficient services, enhanced capacity, and transformation.

The government told the NHS it would get “whatever it takes” to get through Covid-19. But since then, it has been looking to get its funding back onto the track it was on before the pandemic.

As a result, for the past three years, the NHS has been allocated a funding settlement that would have been tight even if significant sums had not been earmarked for elective recovery. Or real-terms increases hadn’t been wiped out by inflation and strikes.

Or demand hadn’t continued to rise, fuelled by aging, poverty, and a big increase in mental distress. All of which happened. To try and break-even last year, NHS England was forced to transfer significant sums from elective recovery, winter pressures, and capital budgets – including technology.

Yet health systems and trusts are now reporting end of year deficits for 2023-4 that are significantly worse than expected. And the NHS is heading into a new financial year facing a ‘black hole’ of around £4.5 billion.

Cuts bite at a system level

In response, NHS England is putting more and more organisations into the ‘recovery support programme’ or special measures, while demanding a crackdown on agency staff, reductions in headcount, and service ‘consolidation’ across the board.

Things certainly feel tough on the ground, according to members of the Highland Marketing advisory board, and one reason is that system thinking is coming into play. “The deficit is being treated as a system problem and not just an organisational problem,” said Ian Hogan, the chief information officer of a mental health trust.

“That means the days of ‘I am doing ok and never mind anybody else’ are gone. If the system isn’t doing ok, then nobody is doing ok.” This raises the question of whether integrated care boards, which only got legal status in July 2022, are mature enough to cope, and have the accountability required.

As Cindy Fedell, a former trust CIO who now works at a hospital group in Ontario pointed out, “if we want ICBs to deliver system control, they will have to have the structures in place to do it, because, at the moment, the system is officially organisation based.”

There’s also the question of whether finance and control are what ICBs should be focusing on. Advisory board chair Jeremy Nettle pointed out that when they were established, “the idea was that they would drive integrated care and public health, using population health management” approaches.

But in reality, and whatever the structural wrinkles, “a lot have moved into managing the acutes.”  Nicola Haywood-Cleverly, former public sector CIO and non-executive director, agreed. “The model is starting to feel like the commissioner model, rebadged,” she said.  

Strong IT leadership needed – but not always in place  

If ICSs are at different levels of maturity and leadership, then so is their digital and transformation capability. When they were set-up, very few integrated care boards chose to give the chief information officer a seat on the board.

Andy Kinnear, a consultant who used to lead a commissioning support unit, pointed out that this led to some high-profile digital leaders leaving the NHS – taking their experience of working through previous financial crunches and restructures with them.

Organisations that don’t have gnarly digital leadership in place are likely to find it harder to use technology to address the pressures they are facing. “How IT works in recovery terms – if that is still a thing – or productivity terms is going to be difficult if there isn’t the leadership at the ICS level,” Hogan said.

IT is not ‘back office’ (it’s not even just IT)

Entrepreneur Ravid Kumar spelled out why this is short-sighted, at best. “The answer to many problems in the NHS is to innovate,” he said. “If you are not investing, you are going to be pushing the waiting list up and compromising patient care.”

But he worried that for the reasons discussed, plus big EPR and data programmes being driven from the centre, plus a general election on the way, many organisations are “sitting back” and hoping that others will make big investment decisions for them.

Worse, there is some evidence that ICSs (and trusts) see what many still call ‘the IT department’ as the kind of “back office” function that can be offered up for cuts to preserve “frontline” services. “Where IT doesn’t have a seat on the board, it is often a responsibility of the chief financial officer, and their primary responsibility is to balance the books,” said Haywood-Cleverly.  

“In the current environment, that’s going to mean that taking a predictable approach to saving is going to top an innovative approach to risk. The focus is going to be on not running out of fuel, even if that means putting off the upgrades that might get the most out of the engine.”

Hogan argued this is another mistake. “IT is not – and has never been – back office,” he said. “These days, if you don’t have IT, nothing is going to be done. Everything requires access to records, or imaging, or test results; and that’s before you even get to the transformation piece.”

Really, the board argued, digital and data should be seen as a core, strategic function, with strong professional leadership. However, this has not stopped a wave of redundancy programmes aimed at corporate teams.   

Tough times for suppliers

The financial situation, and the way it is being dealt with, impacts suppliers. David Hancock, a consultant who used to work for large health tech firms, said “good vendors will always try and demonstrate value” but may still find that organisations are not receptive to their ideas; or be able to invest in them if they are.

So, what can be done? At a fundamental level, the advisory board felt that whoever forms the next government will need to take a hard look at NHS demand, scope and funding, and get them better aligned. At the same time, the NHS will need to find a better way of handling mismatches than flipping between deficits and cuts.

Which will mean getting back into the transformation agenda. Which will mean investing in digital and data. “I don’t talk about digital transformation anymore,” said Hogan, “because as soon as you do that, it becomes digital’s transformation, and it’s not, it’s everybody’s transformation. “But you still can’t do it without IT, so if you just see IT as this ‘back office’ function it’s not going to get done.”

Find the leaders, build for the followers  

In the short term, Kumar argued, suppliers are going to be best looking for partners that recognise this. “If there are some ICSs that are willing to show leadership, then work with them, and others can follow,” he said.

“We’re probably looking at a difficult couple of years as a new government decides what to do, but if some areas can show the way, there will be something for others to follow.”

Kinnear argued that the loss of some senior digital leaders might, paradoxically, give suppliers the opportunity to work with people with new ideas. “We have been talking about the failure of the National Programme for IT [which ran from 2002 to 2011] for 20 years,” he said.

“It’s cast a long shadow, but the people who have lived under it are starting to move on, and we need to do the same. Benefits are achievable. We just need to get people in there, delivering them.”  

Funding trends since Covid-19

The government told the NHS it would get “whatever it takes” to get through Covid-19. But since then, it has been looking to get NHS funding back on the track it was on before the pandemic. This has meant funding settlements have been tight.

Budget, 2022: In his first Budget as chancellor, Rishi Sunak set out a funding envelope for the NHS that envisaged real-terms growth of 3.8% from 2022-3 to 2024-5 – the last three years of a comprehensive review period that had nominally started in 2020-21.

This level of increase was below the long-term trend line. But it was also below what was needed to meet the demand being put on the NHS by an aging, increasingly poor population.

The Nuffield Trust has estimated that spending is £20 billion below the projections set out in the NHS Long Term Plan. While the King’s Fund has estimated that an additional £3.3 billion a year would have been needed in the final two years of the settlement (ie last year, 2023-4, and this year, 2024-5) to cover increased demand.

The increase was also low in international terms. The Health Foundation has estimated that the UK would have to spend an additional £40 billion a year to match comparable European countries.

Ear-marking and inflation impact 2023-4: Significant sums were also earmarked for specific initiatives, such as the elective recovery fund, which put £8 billion into tackling the Covid backlog. This reduced flexibility, just as the ongoing impact of Brexit and the start of the war in Ukraine triggered a bout of inflation.

By the time of the first ‘fiscal event’ fronted by Jeremy Hunt, the Nuffield Trust was estimating that inflation would eat away half of the planned real terms increase for 2024-5. Then, trusts had to cope with the impact of strikes.

To try to keep the system in balance, NHS England transferred significant sums from elective recovery, winter pressures, and capital budgets in-year to prop up “the frontline.” This impacted IT and facilities and may have contributed to a fall in productivity (as more staff were put into an outdated and inefficient system).

Spring Budget, March 2024: By the time of Hunt’s spring Budget in March this year, the Institute for Fiscal Studies was warning that inflation, plus strikes, plus unfunded pay increases had combined to leave the NHS looking at a real-terms funding cut in 2024-5 of 1.2% or £2 billion.

Hunt avoided the bad headlines this would have caused by allocating an additional £2.5 billion to the NHS in England for 2024-5 to “protect day to day funding in real terms” and “support the NHS to continue to improve performance and reduce waiting times” [Treasury Red Book].

More pressures this year: The budget for the NHS in England this year is £165 billion. However, none of the issues that have put pressure on NHS finances over the past couple of years have gone away, and there are further problems on the horizon.

Healthcare systems and trusts are reporting end of year financial positions for 2023-4 that are significantly worse than they were projecting in-year. The headline cases include Greater Manchester, which reported a year-end deficit of £180 million, and King’s College Hospital NHS FT, which finished the year £90 million adrift. In theory, these deficits will need to be recovered.

Meanwhile, NHS England’s very late operational priorities and planning guidance has tightened targets on waiting lists and times, which will need to be paid for – unless productivity picks up dramatically. And it’s still uncertain what it will cost to settle this year’s pay claims and deal with junior doctor and GP strikes this summer and autumn.

One way and another, the accepted view seems to be that the NHS in England started the financial year with a £4.5 billion “hole” in its finances. The IFS and others have predicted that further injections of “emergency” funding are all but inevitable.

How is the NHS responding?

For the moment NHS England has responded by putting even more organisations into ‘special measures; at least 25 trusts and ICBs or a bit under 10% of the total are now in the ‘recovery support programme’. It is also sending out emails demanding a crackdown on agency staff, a reduction in headcount, and service consolidation.   

The Health Service Journal has been reporting on trusts that have been told to cut staff or that are planning to do so, and this early reporting suggests that it is “corporate” roles and “back office” jobs like IT and administration that are first in the firing line.

For example, it reported in April that the Northern Care Alliance is looking to remove 100 roles from services such as quality improvement, infection control, and patient experience and complaints. [Redundancy scheme to cut corporate staff by 14% – Health Service Journal].

However, if organisations are going to get anywhere close to the savings demanded of them, it seems inevitable that they’ll also have to reduce medical staff numbers. This is being picked up by national media.

[NHS told to cut spending on doctors and nurses to save £4.5 billion – The Times] [Cuts will result in patient deaths: hospitals shed medical staff after being told to balance the books – The Observer] [‘Wholly unrealistic’ NHSE financial recovery policy risks ‘significant harm’ warns ICS – Health Service Journal]

May 2024, latest:

Just after the general election was called, the Health Service Journal reported that NHS England had rejected “many” of the spending plans submitted by systems and trusts. It reported that the plans would result in a deficit of £3 billion, which would have to be closed by significant cuts to national programmes.

Finance directors will now have to try and bridge the gap by accelerating savings plans and headcount reductions. One told the website that: “the levels of efficiency in the plans will be huge” – a strange position for the NHS to be in as both the Conservatives and Labour promise to increase capacity to address waiting lists.

[ICSs ordered to revisit ‘unaffordable’ £3 billion deficit plans – Health Service Journal].

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