Briefing: Minister for Finance and Local Government statement on the 2023-24 financial position
Key points to consider:
- NHS leaders recognise that public finances across the UK are extremely challenging. Similar to healthcare systems across the UK, and the world, the NHS in Wales has reached a tipping point: the cost of providing healthcare continues to rise at the same time as demand on, and expectations of, the service continue to increase. We need honesty from all politicians across political parties regarding the unprecedented state of public finances.
- The NHS currently faces its greatest financial challenge. The pandemic has led to a more complex picture for the health and care system. The NHS is facing very large increases in its day-to-day costs as a result of inflation, the elective care backlog, recruitment and retention of the health and care workforce, implementation of the pay award and continuing healthcare. These costs are further heightened by an increase in delayed pathways of care, increased demand and acuity of patients, increased spending on primary care and hospital prescriptions, the rising cost-of-living, alongside public expectations and reducing confidence.
- NHS leaders are already making difficult decisions about spending priorities, considering where further efficiencies can be made, with more to come. This is a top priority for them right now. When reviewing plans and looking at further efficiencies, NHS boards are working with their clinical teams and care groups to inform decisions.
- NHS organisations will be undertaking comprehensive impact assessments before finally approving and implementing options and efficiency savings that have been identified. Impact assessments may consider the following issues:
- No significant harm will be caused to patients’, for example cancer treatment, and urgent and life-threatening care will continue.
- Any intervention should be clinically cost effective and evidence based.
- Avoid any proposals where there is the potential for serious impact on patient experience.
- Recognise the rural nature of Wales and the need to maintain time-critical urgent and emergency services.
- How the proposed changes will impact the legal Duty of Quality which all NHS organisations must comply with.
- The NHS needs to maximise the way it uses and spends the resources available, focusing on achieving the best outcomes for patients. However, this will inevitably impact the way services are delivered. It is clear there is a lot of work to do to meet the financial challenge, which has not been previously experienced in the NHS. Financial stability is key due to the impact it has on the quality of services and patient outcomes. Decisions made now could have a long-term impact on the health and wellbeing of the population.
- All sectors must work together to support the health and wellbeing of the population, to tackle inequalities and respond to the cost-of-living crisis to prevent further harm to the most vulnerable in our society. There needs to be an open and honest conversation with the public about what the future health and care service looks like to ensure the sustainability of health and care in Wales.
- The response from NHS Wales organisations to the challenges of the pandemic demonstrate that the health and care system can respond quickly and effectively when working in partnership with other public sector bodies, in addition to the third sector and communities. NHS leaders will do whatever they can to get the best value and outcomes for patients and improve efficiencies. That is why innovation, embracing digital and thinking differently about how services are provided in the community are vital.
The current financial outlook
Like other public services across the UK, the NHS in Wales has been impacted by a range of external drivers; increased inflation and energy costs and the resulting cost-of-living crisis, demand on services following the pandemic and staff recruitment and retention.
With a significant gap between the growth in healthcare demand and an inability to respond fully in the short to medium term, within certain fiscal constraints, all health boards are forecasting a deficit in this financial year (2023-24). It is extremely challenging for NHS leaders to make the significant savings required halfway through the financial year. It is vital that there is financial sustainability, but also that we have quality of services and positive outcomes for patients.
Key drivers contributing to the financial situation
The key drivers contributing to the increased deficits in 2022-23 and forecasted deficits for 2023-24 include:
Underlying deficits from 2022-23
All health boards had underlying deficits from 2022-23 that have been carried forward to 2023-24, therefore it was the starting point for financial plans in 2023-24. As highlighted in the recent Audit Wales report the overall deficit for 2022-23 was £150m: “Against a backdrop of significant pressure, the total in-year deficit for 2022-23 has increased to £150 million (£47 million in 2021-22) and the three-year cumulative over-spend across the NHS increased from £184 million in 2021-22 to £247 million in 2022-23”.
Workforce
A sustainable workforce is essential for a sustainable NHS. There has been an increase in costs as a result of the workforce, both in the NHS and social care. Pay costs accounted for 45 per cent of health board revenue spend in 2022-23, around £5.4 billion.
Workforce pay pressures have increased due to industrial action, high levels of vacancies and sickness, resulting in high variable pay expenditure and outsourcing of services from private providers, such as agency. The increase in agency nursing staff is largely required because of the demands placed on NHS services by delayed pathways. As highlighted by Audit Wales, expenditure on agency staff has grown steadily over the last five years, with a further increase of 20 per cent in cash terms in 2022-23, putting overall agency spend at £325 million across NHS Wales. The majority of the spend is to cover workforce vacancies, with some of the increase supporting additional activity. In many health boards, this is the highest level they have ever seen.
Inflation
There has been significant in-year variation driven by energy price fluctuations. NHS organisations this year have had to find funding for any increase in energy costs. In 2022-23 the exceptional energy inflation was funded by Welsh Government on a non-recurring basis, but this funding has not been provided in 2023-24. Forecasts of the excess cost in 2023-24 have been made for each health board and trust on a consistent basis. The additional energy costs forecasted range from £1m to £12m.
Social care
Social care services play a crucial role in care pathways by keeping people well for longer outside of hospital and enabling faster, safer discharges home. There continues to be a significant number of patients, on average 1,500, waiting to be discharged from hospital due to challenges in the care home sector or requiring a care package to be put in place, costing the NHS hundreds of millions of pounds every year. The average rate of a hospital bed is £500 per night, therefore with 1,500 people medically fit for discharge in hospitals across Wales it costs an average £750,000 per night to the NHS across Wales. This is a significant driver of financial pressure. In addition, there has been increased expenditure on Continuing Health Care and Funded Nursing Care due to increases to Local Authority care home rates, the increase in pay due to the increase in the Real Living Wage and the Funded Nursing Care rate driven by increase in NHS Wales pay award.
Medicines and prescriptions
There has been increased spending on primary care and hospital prescriptions due to patient demand and the costs of drugs.
Primary care prescribing inflation and growth are based on detailed modelling by medicines management, together with estimates within finance teams, with a very high level of congruence between the two approaches. Secondary care drug inflation and growth is modelled in a similar way, taking account of new NICE drugs, increases in cancer medications and demand, and forecasts around other aspects of secondary care prescribing. After changes in clinical guidelines and increased activity following COVID-19, there has been an increase in oncology and scheduled care due to the activity and price growth. There has also been a higher-than-average increase in unscheduled care drugs expenditure as emergency departments continue to experience unprecedented demand.
In one health board this increase has been on average £1m more a month than it was two years ago in secondary care and £1.5m a month in primary care.
Capital
The cost of running NHS estates and infrastructure continues to increase. The NHS is faced with an ageing estate, including digital infrastructure, which was not designed for current demands and needs to be brought up to modern standards.
Many hospitals in Wales were built in the 1960s or earlier, with 12 per cent of the estate built pre-1948 and only 6 per cent post 2015. For many NHS organisations, there are significant ongoing costs to repair estates and undertake essential maintenance, with one health board estimating the maintenance costs to be in the region of £150m, and many must replace key expensive service items that are well past their effective working lives. In addition, in Hywel Dda University Health Board remediation work is being undertaken in Withybush Hospital following the discovery of RAAC. This is not only expensive but prevents NHS organisations from using the funds towards new services. It is also vital to invest in digital infrastructure, which is becoming increasingly important to mitigate the cyber security risks and resilience.
COVID legacy
It is clear the pandemic and its ongoing effect continues to have a significant impact on healthcare systems and the workforce. This includes the ability to achieve the level of service delivery needed to eradicate clinical treatment delays, with rising demand on services, more patients presenting with higher acuity, and the ability to recruit and retain the workforce needed across health and care services. Alongside this, there are service changes made during COVID which are embedded within health board expenditure and with COVID transmission rising again, some health boards have had to close wards and are dealing with staff sickness linked to COVID.
Following COVID, there has also been a legacy due to the cleaning standards introduced, PPE provision and testing. One health board has forecasted an estimated £84.4m will be spent on COVID-related costs in 2023-24, with funding provided by Welsh Government being scaled back.
Efficiencies
The focus from NHS leaders across Wales has been on engaging and working with staff to bring down deficits and make efficiencies to ensure organisations are financially sustainable in the future.
Health Boards have savings targets, with all parts of the NHS expected to review services and delivery against this expectation. The approach NHS organisations are taking is to prioritise the highest quality value-based care, which we know to be most cost effective, and to ensure the best use of resources, avoiding waste, inefficiency, duplication and variation.
All NHS organisations are involved in the Welsh Government Value and Sustainability Board to identify and implement opportunities across the system to support financial improvement.
Areas where there have been efficiencies include:
- Reducing temporary staffing by developing in-house staff banks and moving to weekly pay for bank staff.
- Local and internal recruitment campaigns to fill vacancies to reduce agency spend.
- Stopping all non-essential study and educational leave and reviewing attendance at external conferences.
- Tight control on administrative and management recruitment.
- Focus on non-pay spend to reduce expenditure.
- Medicines teams driving value for money through use of biosimilars to replace expensive labelled drugs.
- Independent reviews on different clinical pathways to deliver improvements in spend.
Need for honesty with the public
As highlighted in our recent briefing, The NHS at 75: How do we meet the needs of future generations?, the scale of the challenge must be communicated to the public and an honest conversation is needed about what the NHS can be expected to provide in the future.
Difficult decisions will have to be made and that is why NHS leaders require the Welsh Government, and all politicians, to be clear with the public about the scale of the recovery challenge. There is a need to engage with the public on choices required, as the model for long term service delivery will take time to implement so there needs to be short term measures established to delivery higher priority services.
The public must feel personally invested in their wellbeing and our health and care service to help ensure its long-term sustainability, which will only be possible through public involvement and co-production of services. This will allow people to feel supported, empowered and informed to take more responsibility for their health and wellbeing, manage their conditions and use services responsibly. Now is the time to galvanise the Welsh public to engage in how the health and care system can innovate and transform to meet the needs of future generations and make patients more involved and navigators of their care, enabling the NHS to provide care in the future.
NHS contribution to the economy
It is well documented that NHS revenue spending accounts for around 50% of the Welsh Government’s budget, however there must also be recognition of the significant contribution the NHS makes to local and national economies.
Health needs to be seen as an investment in a growing economy, through directly employing over 100,000 people across Wales to quality and stable work with above average wages, as a purchaser of goods and services locally for social benefits, through using buildings and spaces to support communities and through working with and commissioning local partners. Further information can be found in our briefing, Health, wealth and wellbeing: The NHS’ role in economic and social recovery.
Conclusion
We understand the current budget limitations on the Welsh Government and believe we need to work together with the Government and all political parties and public sector leaders to create more innovative solutions across a streamlined set of priorities, which effectively balance short-term need with long-term vision. However, the scale of the challenge must be clearly communicated to the public. NHS leaders will continue to work with partners across public and third sector so that we may collectively rise to the current challenges that we face.
We can’t lose sight of the fact that this isn’t just about budgets, targets and deficits – it’s about people’s lives and they’re the ones who will be impacted, as well as the staff who do their very best to care for them every day.
