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The increasingly market oriented nature of the NHS reform programme is placing a growing number of trusts at financial risk, warns a joint examination of NHS financial management by the public spending watchdogs, the National Audit Office and the Audit Commission.
The report says that almost a third of NHS bodies—189 individual organisations—face cash problems this financial year (2004-5). This is almost double the previous year’s figure of 18%. The Department of Health confirmed that the NHS is heading for its first deficit, of £140m ($260m; €210m), for several years. At least 12 strategic health authorities are expected to be in deficit compared with seven last year.
The report says that payment by results, the new funding arrangement that pays trusts only for the activity delivered, presents "a real risk to financial stability in the coming years." Increased use of independent healthcare providers boosted by extended patient choice in December "will further intensify the uncertainty about income levels." The introduction of the multibillion pound information and technology system and new employment contracts for most staff are also putting trusts under pressure. Many fear the costs of implementing these will be higher than planned.
The accounts show that 12 NHS trusts overspent by more than £5m in 2003-4. The most serious was Mid Yorkshire Hospitals NHS Trust, which had a deficit of £30.6m, reduced to £18.6m after outside support. Four primary care trusts reported substantial overspending, the highest being Hammersmith and Fulham at £8.5m.
NHS trusts need to improve their financial management and forecasting skills considerably to avoid serious problems in the next five years, warned John Bourn, head of the National Audit Office. "In the worst case scenario we will have another five years of just managing to keep the show on the road before the whole carriage goes into the ditch," he said.
The health secretary, Patricia Hewitt, said that the report showed that leadership and financial discipline were weak in some organisations. But she insisted that the government’s reforms were the solution, not the problem. "The reforms themselves are designed to stimulate contestability and consequently encourage good financial discipline."
The NHS Confederation, the body that represents most NHS trusts, suggested that the "raft of government targets" had led some organisations to overspend. "The department says the reforms will help deal with the deficits, and they will in the longer term," said Nigel Edwards, policy director. "But in the short term they are likely to increase inflationary pressures and some of the pressure reported here may intensify."
"The pressure to meet political targets on top of radical reform has meant some trusts have been left in a devastating financial situation," said a BMA spokesperson.