The Committee concludes the financial performance of NHS trusts and NHS foundation trusts has deteriorated sharply and this trend is not sustainable.
The Committee highlights the "long-term damage" to trusts' finances caused by unrealistic government efficiency targets, and describes the data used to estimate trusts' potential cost savings targets as "seriously flawed".
It concludes the current system for paying providers "is not fit-for-purpose as it does not incentivise the right behaviours needed for joined-up healthcare services".
Spending on agency staff "concerning"
The Committee is also concerned by the approach of government to trusts' spending on agency staff—finding that while this spending has contributed to trusts' deficits, the Department of Health, NHS England and NHS Improvement "are only recently making serious attempts to control agency spending".
Its recommendations to government include ensuring "all trusts in deficit have realistic recovery plans by the start of the 2016–17 financial year that will lead to timely and sustainable improvements" and that "informed and realistic" efficiency targets are set for providers.
As a matter of urgency, NHS England and NHS Improvement should also "set out how they will support providers to secure the collective action that is needed to get value for money from the use of agency staff".
Meg Hillier MP, Chair of the PAC, said:
"Acute hospital trusts are at crisis point.
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. Crude efficiency targets have made matters worse.
Without urgent action to put struggling trusts on a firmer financial footing there is further serious risk to services and the public purse.
In particular it is unacceptable for senior government officials simply to point to excessive agency costs as a source of trusts' difficulties.
It is the job of those officials to take action to control spending on agency staff, and to address its underlying causes. The use of agencies is a sticking-plaster solution to deep-rooted problems with NHS workforce planning.
The government's approach to planning is a serious and recurring concern for this Committee—one that we highlighted in our report last week on access to general practice, and in our hearing last month on managing NHS clinical numbers.
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.
We expect the Department of Health, NHS England and NHS Improvement to report back to us in September on precisely what progress they have made in addressing our recommendations and those previously set out by the National Audit Office."
At 31 March 2015 there were 90 NHS trusts and 155 NHS foundation trusts, of which 55 NHS trusts and 100 NHS foundation trusts were acute hospital trusts providing healthcare services such as accident and emergency, inpatient and outpatient and in some cases specialist or community care.
Finances across the NHS have become increasingly tight with health funding rising at a historically low rate of 1.8% in real terms between 2010–11 and 2014–15.
The financial health of NHS trusts and NHS foundation trusts has significantly worsened in the last three financial years. Trusts had a net deficit of £843 million in 2014–15, which is a severe decline from trusts' £91 million deficit in 2013–14, and £592 million surplus in 2012–13.
Trusts' finances look set to deteriorate further—halfway through 2015–16 three quarters of trusts had a deficit, and their total overspend could rise to around £2.5 billion.
The Department, NHS England and NHS Improvement have not taken action soon enough to keep trusts in financial balance. The target for trusts to make 4% efficiency savings across the board is unrealistic and better data is needed for more informed savings and efficiency targets.
Current system "not fit-for-purpose"
Failings in the system for paying providers need to be addressed as a matter of urgency, with NHS Improvement and NHS England acknowledging that the current system is not fit-for-purpose as it does not incentivise the right behaviours needed for joined-up healthcare services.
Spending on agency staff has contributed to trusts' financial distress, and action to tackle this problem is welcome, albeit late. The NHS will not solve the problem of reliance on agency staff until it solves its wider workforce planning issues.
We recognise the immense challenge of achieving financial and service sustainability when demand is rising and budgets are tight, and acknowledge the ongoing efforts of NHS England and NHS Improvement to find solutions. But there is much to do to produce the convincing plan necessary for the NHS to get itself back into financial balance.