The government has failed to act quickly enough to keep acute hospital trust finances afloat and put in place a “convincing plan” to close the huge “black hole” in NHS finances, says a damning new report by the Public Accounts Committee.

The report concludes that the financial performance of NHS trusts and foundation trusts has “deteriorated sharply” in the last three years and warns that this trend “is not sustainable”.

Trusts racked up a net deficit of £843 million in 2014/15 - a severe decline from the £91 million shortfall of 2013/14 and a far cry from the £592 million surplus for the prior financial year - and the PAC believes to situation looks set to deteriorate further; halfway through 2015/16 three quarters of trusts had a deficit, and it is feared that their total overspend could rise to around £2.5 billion.

Moreover, the report highlights the "long-term damage" to trusts’ finances from unrealistic government efficiency targets, and argues that the data used to estimate potential cost savings targets is “seriously flawed”. Failings in the system for paying providers also need to be addressed as a matter of urgency, the Committee has stressed.

"Acute hospital trusts are at crisis point,” said Meg Hillier MP, PAC chair. “Central government has done too little to support trusts facing financial problems with the result that overall deficits are growing at a truly alarming rate,” and “crude efficiency targets have made matters worse”.

“There is a long way to go before the taxpayer will be convinced there is a workable and properly costed plan in place to secure the future of our health service,” she noted, and stressed that the PAC is expecting the Department of Health, NHS England and NHS Improvement to report back in September “on precisely what progress they have made in addressing our recommendations and those previously set out by the National Audit Office”.

Paul Briddock, director of policy at the Healthcare Financial Management Association (HFMA), says the PAC report “echoes what HFMA has been saying for a long time”. 

“We know that 75% of all providers, and 95% of acute trusts are in deficit - an incredibly worrying and non-sustainable percentage that gives the sector a mountain to climb to bring the NHS into financial balance again”, he warned. “This systemic problem needs to be tackled through genuine collaboration, against a sensible timeframe and with realistic targets”. 

“We’ve seen evidence reported that the quality of services and care targets have already begun to suffer, reminding us that we are not just talking about arbitrary figures here, but instead the impact these spiralling deficits can have on patient care in the long term.”

'Urgent action' needed

“This report rightly identifies that urgent action is required to stabilise acute services in the NHS, as well as to create a sustainable financial future for our hospitals,” commented Rob Webster, chief executive of the NHS Confederation.

“To their credit, the Government, NHS Improvement and NHS England have begun to address some of the issues our members face. Through front loading of the finances in the NHS, targeted allocations to acute hospitals, a reduction in the efficiency factor to two per cent next year and the creation of three to five year planning, we are seeing the conditions improve,” he said, but stressed that “more needs to be done”.

“There is an urgent and pressing need to reform the financial system of reward and risk in the NHS. Too often the incentives work against whole person care. Costs in one part of the service leading to improved integration and savings in another part of the service carry no incentives or double running support, just financial pressure and possible censure from individual regulators. This must change”.