Hospital finances and productivity: In a critical condition?

April 2015

Key points

The financial performance of NHS providers in England has deteriorated sharply since 2013, from a net surplus of £582m in 2012/13 to a net deficit of £789m at the end of Q3 of 2014/15.
Despite an expected under-spend from commissioners of £197m, the NHS is projected to overspend by £626m by the end of 2014/15.
Staff costs are the biggest driver of rising operating costs. Spending on temporary staff grew by £1bn (27.8%) in 2013/14 and continues to rise. Acute hospitals are hardest-hit: 76% were in deficit at the end of Q3 of 2014/15, up from 19% in 2012/13. Hospitals’ crude productivity fell by almost 1% in both 2012/13 and 2013/14.
NHS hospitals have only improved efficiency at an average rate of 0.4% a year over this parliament. This is substantially below previous estimates and the 2-3% set out in the NHS Five year forward view.

The NHS in England faces the huge challenge of meeting rising demand in a period of sustained financial pressure. The service is projected to overspend its budget by £626m in 2014/15, despite £250m additional Treasury funding and an extra £650m from transferred planned capital investment.

In this report we examine the financial performance of NHS providers, focusing on hospitals. We identify areas of cost pressure using their financial accounts up to 2013/14 and quarterly reporting data up to December 2014 (Q3 2014/15). We also examine trends in efficiency and productivity from 2009/10 to 2013/14.

See the technical appendix for more details of the methods used for the report.