Department of Health and Social Care accounts mask reality of funding pressures says PAC report

- Department should provide an assessment of the impact of regional variations on patient care

- Urgent action needed on risks Brexit poses to recruitment and the supply of medical equipment

- NHS 10-year plan must explain how the service will address the many challenges it faces

 REPORT SUMMARY

The financial sustainability of health and social care is a serious and ongoing concern of the Committee.

The Department of Health and Social Care’s 2017-18 annual report and accounts suggests an improvement in fortunes when taken as a whole. But this masks the underlying deficits at a local level and the continued use of short term measures to reduce individual deficits, such as use of the sustainability and transformation fund and money to help with winter pressures.

This overall figure also fails to show the regional variations and balancing act between the different health bodies.

In 2017-18, 101 of 234 of NHS Providers were in deficit but this was largely off-set by a surplus in NHS England’s finances. NHS England achieved this surplus despite 75 of the 207 Clinical Commissioning Groups (CCGs) reporting an overspend.

Recent reports that around a fifth of hospital trusts and health boards across the UK have missed their A&E, cancer treatment, and non-emergency surgery waiting time targets, hammer home the concerns we hold about the reality of the financial pressures on trusts at local level. 

As part of its long-term plan for the NHS, the Department intends to ensure that finances balance at the individual NHS Provider and Clinical Commissioning Group level, as well as the system overall, but this is still some way off.

In addition, the continuing uncertainties surrounding the long-term funding of social care, the funding of NHS staff pay awards and the UK’s arrangements after leaving the European Union, with issues around workforce and medical supplies, highlight the challenges the Department continues to face. 

The 10-year plan must set out how these challenges will be met.

COMMENT FROM PAC CHAIR MEG HILLIER MP

“As Christmas approaches amid news of overcrowded hospitals, patients experiencing the worry of waiting for important treatment or surgery will take little comfort from bottom-line figures for national health spending. 

“Missed targets, widespread deficits and the raiding of funds earmarked for other purposes tell their own story.

“It is concerning that more than a third of Clinical Commissioning Groups reported an overspend last year. This is clearly unsustainable and something we will examine in more detail in the new year.

“The Department of Health and Social Care must show far more urgency in getting to grips with regional funding imbalances and demonstrate it understands the effects these have at the frontline.

“But there are other indicators of an under-pressure Department at risk of losing its way. The Department’s lack of clear Brexit planning could threaten the supply of medical equipment. Staff shortages could deepen. The potential consequences for patients are serious.

“These and other uncertainties are amplified by the continued absence of the Government’s promised 10-year plan for the NHS, its promised plans for social care, and its promised plans for immigration.

“These areas of Government activity are intimately linked and critical to the delivery of key public services. Government must honour its commitments to Parliament and taxpayers.”

CONCLUSIONS AND RECOMMENDATIONS

The Department’s focus on health spending at a national level fails to take into account regional variations in funding and the impact this has on patient care. In 2017-18, 101 of the 234 NHS Providers (NHS Trust and Foundation Trusts) were in deficit at the end of the financial year and NHS Providers reported a total deficit of £991 million. This deficit was largely offset by a surplus of £970 million within NHS England’s (NHSE’s) finances. NHSE achieved this surplus despite 75 of the 207 Clinical Commissioning Groups (CCGs) reporting an overspend, totalling £0.2 billion. At present the Department focuses on ensuring the whole NHS is in balance, but there is significant regional variation in the finances of individual organisations which we are concerned could pose a risk to patient care in areas with large deficits. The Department told us that it plans to address the regional imbalance in the finances of the NHS to ensure that all NHS Providers and CCGs balance their finances or achieve a surplus, but that it would be at least two to three years before this could be achieved and there is no certainty that this will be achieved.

Recommendation: The Department should, by 31 January 2019, write to the Committee to outline its assessment of the impact regional funding variations have on patient care.

The Department’s lack of a clear plan for recruiting staff after Brexit risks exacerbating existing staff shortages in the health and social care workforce. At the end of June 2018 there were 108,000 vacant posts in the NHS, which represents approximately 10% of the 1.1 million whole time equivalent staff employed by NHS Providers in England. The Department currently considers vacancy rates within the NHS at a national level. This hides underlying disparities in specific specialisms and local areas and does not allow them to fully understand the impact of staff shortages. We are concerned that existing shortages of staff could worsen depending on the UK’s immigration policy following Brexit. We are not reassured by the Department’s assertion that it has not seen a large exodus of staff since the referendum and that the number of people from the EU working in the NHS has increased. The Department told us it is committed to expanding the British workforce in the NHS both by training more staff and continuing to ensure that the NHS is somewhere that people want to come to work. It told us that it is working with the Home Office to ensure that the future immigration policy takes into account the need to recruit more permanent staff for the NHS.

Recommendation: The Department should, by 31 January 2019, write to the Committee to outline how it will address the workforce issues affecting specific specialisms and geographical regions.

Recommendation: The Department should, as soon as the Home Office’s immigration white paper has been published, write to the Committee setting out how it will respond to any changes in immigration policy arising from Brexit.

The Department has failed to assess the risk Brexit poses to the supply of medical equipment, risking patient care. The NHS procures 56 per cent of medical consumables, such as gloves, dressings and syringes from, or via, the European Union. The Department aims to build up a six-week stockpile of these goods, along with medicines, to mitigate potential supply issues during the weeks immediately following 29 March 2019. It told us that potential disruption to the supply of large medical equipment, such as X-ray machines, was not on its radar. The Department similarly told us that it had not communicated with NHS Providers to establish the impact this potential disruption could have on patient care. The Department informed us that it had however, at the start of October, issued advice to NHS Trusts to perform a review of contracts held with the aim of identifying the potential consequences of Brexit. The Department was unable to tell us what level of risk this poses to NHS Providers, services or patient care and has since written to us confirming that it is not putting specific contingency measures in place in relating to the stockpiling of equipment.

Recommendation: The Department should write to the Committee by 31 January 2019 with details of its assessment of the impact of Brexit on the supply of medical equipment and, where necessary, what contingencies it has put in place.

We are concerned that the Department’s decision to fund pay awards through the National Tariff risks the funding not being distributed to the intended NHS Providers. For 2018-19, the Department has decided to fund the Agenda for Change pay award, covering NHS staff on standard terms and conditions, using one off payments separate to the National Tariff as this had already been agreed. However, the Department did not provide any detail as to how it had allocated the one-off payments to ensure they were only made to cover Agenda for Change employees rather than private healthcare providers or those not on standard NHS pay terms. The Department told us that it plans for the 2019-20 pay award to be incorporated into the National Tariff. The National Tariff includes adjustments to account for the cost of operating in different geographical locations. We are therefore concerned that some NHS Providers in affluent areas will receive a disproportionately higher share of funding even though there is a national pay system in place for NHS staff. Funding through the tariff will also increase payments made to private healthcare providers, whose employees are not on Agenda for Change terms. We are similarly concerned that NHS Providers using wholly-owned subsidiaries, who employ non-clinical staff outside of the Agenda for Change terms, could also benefit disproportionally when pay awards are funded through the tariff.

Recommendation: The Department should, by 31 January 2019, write to the Committee to explain how funding for the pay award has been allocated.

The recently launched consultation on the NHS’ regulation of wholly-owned subsidiaries and pause of existing proposals is welcome but must address concerns about the use of these companies. We have previously raised concerns about the NHS’ use of wholly-owned subsidiaries and that trusts were increasingly looking to form subsidiary companies, partly to remove NHS contractual terms and conditions from any new non-clinical staff and thus make savings from lower salaries and pension contributions. We also raised concerns that these subsidiaries may benefit from reduced tax liabilities. The Department and NHS Improvement previously told us that it had not been tracking these arrangements, and neither the Department nor NHS Improvement appeared aware of this trend. NHS Improvement committed to us that it would review its regulatory oversight of these subsidiaries and we will be interested in the results of the recently launched consultation on regulating the use of these bodies.

Recommendation: The Department should update the Committee on the timeline for and outcome of NHS I’s consultation on the oversight and use of wholly-owned subsidiaries by the NHS.

We are concerned that the Department’s preparations for winter, and the decision to allocate additional winter funding solely to social care services, may not be sufficient to meet demand. The Department has a record of implementing annual short-term fixes to deal with the additional demand placed on NHS services during the winter, for example cancelling elective procedures in January 2018. The Department told us that it plans to reduce the need to make cancelations at short notice this winter by scheduling fewer elective procedures. Despite this, it would not provide a guarantee to us that a blanket postponement would not occur again. The Department has provided an additional £240 million of social care funding to local authorities to help reduce delayed transfers of care and increase the availability of hospital beds during the winter. However, if this amount were divided equally between local authorities this would only be equivalent to £1.6 million per authority, despite them suffering significantly larger funding cuts. In addition, the Department told us that it does not plan to seek any assurances that the £240 million has been spent as intended, putting accountability for taxpayers’ money at risk.  

Recommendation: The Department should put in place long term solutions for winter through the integration of health and social care. This should be achieved by the time of its Government’s costed 10-year social care plan, due in April 2019.

The Department’s current estimate of fraud within the NHS isn’t yet robust enough to enable it to target specific areas to prevent loss. The Department created the NHS Counter Fraud Authority (NHS CFA), which is responsible for identifying, investigating and preventing fraud within the NHS and the wider health service, on 1 November 2017. NHS CFA subsequently published its 2018 Strategic Intelligence Assessment (SIA) which estimated that the level of fraud within the NHS was £1.29 billion during 2016-17. The Department explained that elements of the estimate are based on dated and non-specific information. It confirmed, however, that the estimate nonetheless provides a starting point for estimating fraud to help identify areas where targeted intervention would be beneficial. As part of its work to combat patient prescription charge fraud the Department issued 1 million Penalty Charge Notices (PCNs) in 2017-18. However, these notices are often overturned on appeal as large numbers are issued as a result of patient administrative error as opposed to patient ineligibility to receive free prescriptions.  

Recommendation: The Department should, by January 2019, provide the Committee with details of how it will improve its ability to target interventions at specific areas and better prevent loss. The Department must ensure that it distinguishes between what is fraud and what is error. 

The Department’s inability to accurately forecast its exposure to clinical negligence costs in advance of the end of the financial year resulted in a £14.8 billion underspend. The Department gained approval from Parliament to increase its Annually Managed Expenditure (AME) budget by £13.6 billion from £14.7 billion to £27.9 billion in February 2018. This budget relates almost entirely to the amount the Department may pay out in the future when setting clinical negligence cases and could not be spent on the day to day running of the NHS. However, in its 2017-18 accounts, the Department reported that it had underspent this budget by £14.8 billion, more than 50% of the money available. The Department’s estimate of how much these cases might cost relies on an assessment by actuaries that is performed at the end of the financial year. While we recognise that it is difficult to reliably estimate it earlier, we are nonetheless concerned that the extent of the Department’s underestimate suggests it is unaware of its exposure to clinical negligence cases when setting its budget. The Department told us it had taken a cautious and prudent approach to avoid it exceeding the amount agreed by Parliament, but stated that it was not happy with this level of underspend.

Recommendation: The Department should create a more accurate forecast of its exposure to future clinical negligence costs. The Committee expects this to be in place in time for the supplementary estimate to avoid a similar underspend against the Department’s budget in 2018-19.