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NHS Financial Performance Quarter 2 2006-07

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NHS Financial Performance Quarter 2 2006-07 NHS financial performance Quarter 2 2006-07 9 November 2006 © Crown copyright NHS FINANCIAL PERFORMANCE additional £100 million QUARTER TWO 2006-07 contingency sufficient to cover the net deficit of £94 1. Introduction million now forecast by the NHS (after application of 1.1 This report provides a summary £350 million contingency as of the current forecasts for NHS reported at quarter two). At financial performance based quarter one, the NHS was upon the quarter two financial forecasting an £18 million returns provided by NHS Trusts, surplus and, at this stage in Primary Care Trusts (PCTs) and 2005-06, the forecast Strategic Health Authorities deficit was £623 million; (SHAs). The figures in this report exclude NHS Foundation iii) forecast gross deficits for Trusts. the year total £1,179 million compared with £883 million 1.2 For ease of reference, it follows at quarter one and £1,312 broadly the format of the quarter million in 2005-06. one report1 covering forecast Forecast gross surpluses financial outturn for the year (excluding contingency) (compared with 2005-062 and total £736 million compared quarter one) and performance with £551 million at quarter against key service targets for one and £765 million in patients. 2005-06; 1.3 Included in the annexes to this iv) 175 organisations are report are the financial forecasts forecasting deficits for each organisation grouped by compared with 120 at Strategic Health Authority. quarter one, and 179 reporting a deficit in their 1.4 In summary, as at the end of final accounts for 2005-06, quarter two: although fewer than last year are reporting large i) we remain on track to deficits. deliver net financial balance across the NHS. 1.5 On the basis of trends in Although forecasts have previous years and the action deteriorated since quarter being taken, the objective of one, SHAs have action in achieving net financial balance hand to compensate for across the NHS overall remains this; deliverable; although the growth in the number of organisations in ii) SHAs have reported that deficit and the forecast gross they can generate an deficit is a cause for concern. 1.6 We are aware of some factors 1 Published on 11 August 2006 and available at http://www.dh.gov.uk not yet built into the forecasts 2 Updated since the last report and covering that are likely to have a beneficial audited outturn. Published on 9 October 2006 impact on outturn, and some that and available at http://www.dh.gov.uk will have an offsetting negative 1 impact. The most significant iii) to see an improvement in potential benefit arises from the the financial performance reduction of some of all organisations reimbursement prices for generic reporting a deficit in 2005- medicines from 1st October to 06. deliver the contract sum in 2006- 07 for the pharmacy contractual 2.2 These objectives are to be met framework. This should improve whilst ensuring that Public PCT financial prospects by up to Service Agreement targets are £150 million. The most also achieved. significant adverse factor is the potential impact on redundancy 2.3 As set out in the Operating costs of age discrimination Framework, our key service legislation which could add performance objectives this year around £70 million to costs. cover: 1.7 Our performance and turnaround • elective waits teams continue to work with the • cancer waiting times most challenged organisations to • patient choice and booking reduce forecast deficits. • access to sexual health services 1.8 Despite the financial challenges, • MRSA activity levels continue to rise • reducing health inequalities and performance in the key service areas has held up or Financial framework improved. 2.4 The Operating Framework sets 2. Objectives and financial out the expectation that PCTs strategy will lodge reserves with their SHAs. The purpose of the 2.1 Our financial objectives this year reserves is to off-set are: overspending elsewhere within the SHA. The reserves are i) to deliver net financial usually reported as a surplus in balance across the NHS the forecast outturn position for (ie: that after the reduction the SHA. in resources to cover the 2005-06 deficit the sum of 2.5 We expect SHAs to maintain the gross surpluses and integrity of the allocations deficits is zero); system, with PCTs entitled to repayment of any contributions ii) to achieve recurrent over a reasonable period usually monthly run rate balance within the three-year allocation (monthly recurrent cycle. Poorest areas and those expenditure covered by with the worst problems should monthly recurrent income) get their contributions back first. across as many NHS organisations as possible 2.6 To allow the funding to be by 31 March 2007; and returned, overspending organisations must return to 2 balance. For this reason Midlands) are forecasting an organisations are expected to improved position in 2006-07. return to balance as quickly as possible, although in some cases 3.3 However, five of the ten SHAs are we recognise this will take more showing a significant deterioration than one year to prevent any in forecast outturn since quarter undue impact on patient care. one: East Midlands (£17 million), East of England (£26 million), 2.7 As explained in the quarter one London (£45 million), South report 1, a number of budgets Central (£15 million) and South have been devolved to SHAs East Coast (£10 million). In each and they have created from case the forecast changes have these a £350 million contingency. been discussed with the SHAs are continuing to manage respective SHAs and action has these budgets actively and have been agreed to improve the reported that they can generate a financial position. further net £100 million contingency. At this stage, on 3.4 Table 2 shows the number of grounds of prudence, this has organisations forecasting a deficit. not been factored into the forecasts. Table 2: Number of surplus/deficit organisations by sector 3. Financial forecasts 2005-06 2005-06 2006-07 2006-07 Month 6 Annual Month 3 Month 6 Forecast Accounts forecast forecast 3.1 Table 1 below shows the forecast No.Orgs No.Orgs No.Orgs No.Orgs position by SHA compared Total deficits 133 179 120 175 Total breakeven 341 13 323 202 against both quarter one and Total surplus 74 357 96 146 2005-06. Trust deficits 61 71 52 56 Trust breakeven 145 11 113 73 Trust surplus 29 154 61 81 Table 1: Financial position by PCT deficits 70 108 67 119 PCT breakeven 195 2 209 129 Strategic Health Authority PCT surplus 38 193 27 55 SHA deficits 2 0 1 0 2005-06 2005-06 2006-07 2006-07 Month 6 Final Month 3 Month 6 SHA breakeven 1 0 1 0 SHA surplus 7 10 8 10 forecast Accounts forecast forecast £m £m £m £m East Midlands (9) (13) 0 (17) East of England (155) (234) (125) (151) London (153) (174) (90) (135) 3.5 We are concerned that the North East 0211817 North West (42) 58 0 1 number of forecast deficits has South Central (74) (59) (11) (26) South East Coast (85) (94) (94) (104) increased significantly from South West (6) (49) (30) (30) West Midlands (80) (38) 0 0 quarter one (up by 55) and is now Yorkshire & The Humber (21) 34 0 0 Contingency 350 350 approaching the number that Total (623) (547) 18 (94) finished 2005-06 in deficit. 3.2 Despite the deduction to 3.6 Most of this increase has been in allocations made in respect of the organisations with forecast deficits 2005-06 overspend, five of the of less than 5% (an increase of 51 seven SHAs that incurred a deficit organisations) and in the PCT in 2005-06 (the exceptions being sector (an increase of 52 South East Coast and East organisations). Three main factors appear to be contributing 1 Published on 11 August 2006 and available at http://www.dh.gov.uk to this: 3 a) organisational change in Table 4: Distribution of size of deficits the PCT sector; (number of organisations) 2005-06 2005-06 2006-07 2006-07 b) the removal of the power of Bottom line as a Month 6 Annual Month 3 Month 6 SHAs to offer “planned percentage of Forecast Accounts forecast forecast turnover support” as income (a Deficit > 10% 11 17 13 14 Deficit 5%-10% 26 34 24 27 change introduced this year Deficit 1%-5% 70 99 62 102 which has the impact of Deficit < 1% 26 29 21 32 improving transparency of Breakeven 341 13 323 202 underlying financial Surplus <1% 55 296 57 97 performance); and Surplus 1%-5% 12 51 31 39 Surplus 5%-10% 6 4 5 4 Surplus >10% 1 6 3 6 c) more rigorous application of the deduction of prior 3.9 As explained above, the big year overspends to PCTs changes since quarter one have than trusts. Data provided occurred in the forecast deficits suggest that SHAs have below 5% with the increased absorbed around 60% of number in this category (51) being 2005-06 trust overspends almost matched by an increase in against reserves but only the organisations with surpluses 36% of PCT overspends. of up to 5% (48). This reflects in part the elimination of the use of 3.7 Table 3 shows the concentration planned support with both deficits of forecast deficits across the and surpluses staying where they system with the pattern very are generated. The maintenance similar to 2005-06 – one third of of the reduction in the number of organisations in deficit but half of large deficits seen at quarter one the gross deficit in 6% of is particularly welcome.
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