Committee publishes findings on securing the future sustainability of the NHS

• Report: Department of Health: Securing the future financial sustainability of the NHS
• Public Accounts Committee 

The Rt Hon Margaret Hodge MP, Chair of the Committee of Public Accounts, today said:

"The Department of Health could not explain to us how it will deal with an NHS trust that goes bankrupt. Nor could it provide reassurance that financial problems would not damage the quality of care or equality of access to all citizens, wherever they live.

The overall surplus of £2.1 billion across all NHS bodies in 2011-12 masks the fact that a significant minority are in financial difficulty. In London, two trusts have a combined deficit of £115 million, one of which, South London Healthcare NHS Trust, has been placed in special administration.

On top of that, the NHS is striving to make efficiency savings worth £20 billion while undergoing a major reform of the system.

Up to now financial problems have often been hidden, with struggling trusts being bailed out through additional financial support from the NHS and the Department.

The Department could not explain  to us what would trigger a trust being placed into the failure regime or exactly how the process would work. We do not know whether a bankrupt trust would be allowed to fail or how and when ministers would intervene. And it is not clear how the Department would ensure that essential services are protected if a trust fails.

It very much looks like the Department is inventing rules and processes on the hoof rather than anticipating problems and establishing risk protocols.

We are particularly concerned that the financial viability of a number of trusts is being undermined by the fact that they are locked into unaffordable PFI contracts. It is unclear how the Department will continue to underwrite payments once most of the money moves to the NHS Commissioning Board".

Margaret Hodge was speaking as the Committee published its 16th Report of this Session which, on the basis of evidence from Department of Health and Monitor, examined the financial sustainability of the NHS.

Ensuring a viable financial future for healthcare providers is vital if the public are to have confidence in the delivery of their local services. Yet we still do not have critical details of how the new system introduced by the NHS reforms will work so that services remain available to patients in their locality.

In 2011-12 NHS organisations in England reported a combined overall surplus of £2.1 billion. There were, however, significant variations in performance between NHS bodies. 377 NHS organisations reported a surplus in the year, but 10 NHS trusts, 21 NHS foundation trusts and three Primary Care Trusts (PCTs) reported a combined deficit of £356 million. Eleven NHS foundation trusts would not have made foundation trust status today given their financial performance, and there is a real concern that some organisations will fail. The very difficult financial situation of some NHS bodies is particularly marked in London, where two trusts reported a combined deficit of £115 million. The Department placed one of these, South London Healthcare NHS Trust, in special administration in July 2012.

The financial sustainability of hospital trusts is even more serious than these figures suggest. Up to now, PCTs and Strategic Health Authorities (SHAs) have been able to give struggling trusts additional financial support in a variety of ways that have not always been transparent. In addition, the Department has provided further significant cash injections of £1.1 billion to some trusts in the form of public dividend capital that it does not expect all of them to pay back. All this additional funding is hiding underlying financial problems, as without this help a further 31 NHS trusts and 11 Foundation trusts may not have broken even.

The Department was not able to explain clearly what would trigger a trust being placed into the failure regime, and how decisions would be made about the future of a trust in financial difficulty. We were particularly surprised that the Department was unable to tell us how the process will work for South London Healthcare NHS Trust, which is already in special administration. We also fear that the new system creating central “risk pools” to deal with trusts in financial difficulties is likely to put more pressure on other health trusts who are already seeking financial savings to meet the £20 billion efficiency savings target. Any monies held in central “risk pools” means less money available to commissioners and trusts to pay for patient services and therefore yet more pressure in the system.

A number of trusts in financial difficulty have PFI contracts with fixed annual charges that are so high the trusts cannot break even. Paying these charges is one of the first calls on the NHS budget and the Department is liable for supporting all PFI payments because it underwrites the Deed of Safeguard given to contractors. It already expects to have to find £1.5 billion to bail out seven trusts facing problems with PFI repayments over the remaining life of their contracts - equivalent to £60 million a year. The guarantee provided by the Deed of Safeguard also gives PFI providers the upper hand in any attempt by trusts to renegotiate the contracts, which experience suggests can result in reduced service levels rather than greater efficiency. The priority given to meeting PFI annual charges inevitably distorts priorities which is especially worrying at a time when resources are constrained.

The Department was unable to spell out to the Committee a clear plan to achieve financial sustainability and a clear strategy for dealing with financial failure in individual trusts. The Department could not provide adequate reassurances that financial problems would not damage either the quality of care or equality of access to all citizens, wherever they live. The incentives for Clinical Commissioning Groups (CCGs) to work collaboratively within regional health economies remain unclear. Given the scale of the challenge, it is alarming that there is a lack of comparative data that could inform a debate on reconfiguration of services particularly because the Department expects that every trust will need to reconfigure services.

Good governance is one of the key elements in ensuring financial sustainability of trusts. We are disappointed that the Department has failed to deliver on its promise to write back to the Committee, by the end of April 2012, on progress to improve governance within NHS trusts.