Appendix 4a
Hertfordshire
Updated Financial Context
Since the original paper on the financial context was released, there has been a worsening of
the financial position of the local NHS. This paper updates the financial context for Hertfordshire
and gives its latest financial projections.
1.0
Prior year and projected expenditure
We recognise that the local NHS has received unprecedented levels of funding increases in
previous years. However, demands on the NHS have risen faster than the levels of funding
received. Therefore, we have spent more money than we received in both the last two years –
an additional £63million (£34million in Hertfordshire) in 2004/05 and a further projected
£128million (£88million in Hertfordshire) in 2005/06. The projection for Hertfordshire has
worsened by £44million since the original paper.
2.0
The NHS in England: the operating framework for 2006/07
The Department of Health has recently published its ‘Operating Framework for 2006/07’ in
January 2006. Under this Framework, the local NHS has been asked to:



2.1
Achieve robust financial health;
Implement reform of the NHS (see below);
Achieve six specific service priorities (see below).
Achieve robust financial health
The Operating Framework (OF) is very clear about what needs to be done to achieve robust
financial health in 2006/07.



Achieve 2.5% improvement efficiency across ALL parts of the NHS;
Recover any overspend from 2005/06;
Plan to attain a financial surplus.
The OF goes on to say that in exceptional circumstances, some organisations may be allowed
more time to recover their 2005/06 deficit – but still have to achieve an in-year balance. There
are conditions around exceptional circumstances, the main one being that the concession is
affordable and within the target agreed with the Department of Health (DoH).
Because of the size of the projected deficit, we have been given exceptional circumstances to
achieve in-year financial balance over two years. In doing so, the DoH have placed us under
‘special measures’. This means that for 2006/07, we have to:



Achieve 2.5% efficiency improvement;
Contain our accumulated deficit within a target of £75million;
Achieve the six specific service priorities set out in the NHS OF 2006/07.
As the 2005/06 financial deficit will be in excess of the DoH target, we have to find savings in
2006/07 to reduce this deficit to the target accumulated deficit. The balance of the accumulated
deficit will need to be recovered in 2007/08. This will be an extremely difficult task.
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Appendix 4a
2.2
Why are we in deficit in 2006/07?
In 2006/07, the Hertfordshire NHS will receive an additional 8.3% in funding. However, it will be
expected to repay some of its accumulated debt whilst meeting the annual financial pressures.
The local NHS faces annual financial pressures like any other business. However, there are
some pressures that are unique to the NHS. The national inflation assumptions for the NHS are
as follows:










Pay inflation
Agenda for Change
Clinical salaries
Drug inflation
NICE recommendations
Information systems
Depreciation
Clinical negligence
Other NHS costs
Primary care

AVERAGE OVERALL
3.0%
1.8%
0.2%
10.0%
10.0%
1.6%
3.2%
1.5%
2.7%
3.6%
The move to a single salary system
New consultant contracts
Implementing best practice
New patient computer systems
Legal claims brought against the NHS
New doctors contract
6.5%
On 17 March 2006, the DoH published its final payment by results (PbR) tariffs for hospital
treatments. The PbR tariffs are the price that Primary Care Trusts (PCTs) have to pay for a
particular hospital treatment – irrespective of where that treatment is provided. Because
Hertfordshire is a net ‘exporter’ of patients to out of county hospitals e.g. in Cambridge and
London, we will have to pay on average 1.3% more for hospital healthcare.
In addition to the annual financial pressures and PbR tariffs, we also have to set aside funds for
achieving the OF service priorities, to address the recurrent financial deficit and begin to pay
back prior year debts.
Original
Revised
(Beds & Herts)
(Hertfordshire only)







Additional funding
Less: financial pressures
Less: PbR Tariffs
Less: OF service priorities
Less: recurrent deficit
Less: prior year debts
Add: control total relief

SHORTFALL IN FUNDING
9.0%
(6.5%)
(1.0%)
{
{(6.5%)
-
8.3%
(6.5%)
(1.3%)
(1.0%)
(2.9%)
(7.3%)
4.6%
5.0%
6.1%
The impact of all these financial pressures is that the whole health economy needs to reduce its
expenditure in real terms by at least 5%. Primary Care Trusts (PCT), who buy health services
for their local populations, have asked ALL provider Trusts to identify areas where costs can be
reduced while continuing to meet the OF service priorities.
2.3
Mental health (and learning disabilities) service reductions
The decision to reduce expenditure in Hertfordshire mental health services by 5% should be
seen in the much wider context of the unprecedented financial problems facing the local NHS. It
was taken by the local NHS Chief Executives to rapidly and radically address the ever-growing
financial deficit.
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Appendix 4a
Mental health and learning disabilities services are being asked to meet a national cost saving
target of 2.5% in the same way as all other NHS organisations. In addition, they have been
asked to meet a local target of 2.5% as a contribution towards the top-slice target. This
compares to the local target of at least 5% now being applied to Hospital Trusts.
It is recognised that the Hertfordshire Partnership Trust has achieved financial balance in
previous years. However, the Hertfordshire mental health and learning disabilities system as a
whole has incurred a deficit. For the year ending 2003/04, the deficit for NHS continuing care
was around £8million.
3.0
OF: Implement reform of the NHS
At this time of significant financial problems, the local NHS is still expected to implement reforms
in its systems. These include:







4.0
Implementing the changes to the organisational structures of the Strategic Health
Authority by July 2006 and Primary Care Trusts by October 2006;
Implementing ‘universal coverage’ of practice based commissioning by March 2007;
Extending the choices given to people about where they will receive their health care –
and how they book that care;
Increasing the numbers of people receiving elective health care in Independent Sector
Treatment Centres (or ’surgi-centres’);
Encouraging NHS provider organisations to become Foundation Trusts;
Implementing the new payments by results scheme;
Developing the new ways of working set out in the recent report ‘Our Health, Our Care,
Our Say: a new direction for community services’.
OF: Achieve six specific service priorities
Finally, the local NHS has to meet six specific health care priorities. These are:






Reducing health inequalities through greater emphasis on smoking cessation schemes;
Maintaining waiting times for the diagnosis and treatment of cancers;
Achieving an 18 week waiting time from family doctor referral to hospital treatment;
Reducing the incidence of MRSA;
Allowing people to ‘choose and book’ their elective health care at times that suit them;
Improving sexual health by giving people 48 hour appointments to clinics.
It is to be noted that Mental Health and Learning Disability services are not featured within the
six specific service priorities.
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Appendix 4a
Appendix A: 2006/07 Uplift and Brought Forward Deficit
Primary Care Trust
(2006/07)
Bedford
Bedfordshire Heartlands
Luton
North Hertfordshire &
Stevenage
Dacorum
Hertsmere
South East Hertfordshire
Royston, Buntingford &
Bishps Stortford
Watford & 3 Rivers
Welwyn & Hatfield
St Albans & Harpenden
Total Primary Care Trusts
Provider Trusts
2006/07
Bedford Hospital
Luton & Dunstable Hospital
Bedfordshire & Luton
Partnership Trust
West Hertfordshire
Hospitals
East & Noth Hertfordshire
Hospital
Hertfordshire Partnership
Trust
Ambulance Services
Total Provider Trusts
Reserves
GRAND TOTAL
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Uplift
£million
14.5
23.75
21.24
18.15
%
9.08
10.06
10.52
9.18
Brought forward deficit
2004/05
2005/06
0.65
(0.13)
(14.54)
(21.40)
(6.04)
(7.96)
(3.86)
(7.44)
13.29
8.32
15.94
6.34
8.71
8.15
9.18
8.15
(4.84)
(4.90)
(0.45)
0.02
(8.75)
(12.49)
(3.83)
(4.88)
15.68
8.98
10.77
156.96
8.15
8.16
8.15
9.04
(1.93)
(0.13)
(1.53)
(37.55)
(5.02)
(2.07)
(6.60)
(80.55)
(8.48)
0.17
0.55
(11.56)
1.25
(9.98)
(28.60)
(8.56)
(22.73)
0.82
-
0.01
(25.47)
0.10
(61.53)
14.41
(127.68)
156.96
9.04
(63.02)