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Last Updated: Tuesday, 26 July, 2005, 23:04 GMT 00:04 UK
Q&A: NHS finances
Money
One in four NHS trusts failed to break even
The NHS has been told by the Healthcare Commission to sort out its finances or patient care will suffer.

How bad is the problem?

According to the Healthcare Commission one in four of the 590 NHS trusts in England ran up a deficit in 2004-5.

The total overspend was 500m, although this is less than 1% of the NHS budget.

The problem is particularly bad for hospital trusts - one in three of which is in the red.

Why is this happening?

The NHS is currently in the middle of a record period of investment with spending increasing by more than 7% a year until 2008.

But the health service is also undergoing unprecedented change.

The NHS Confederation, which represents health service managers, has blamed financial pressures from the new contracts which have boosted GP and consultant pay in recent years.

Officials also say trusts are prescribing expensive new drugs, the cost of which runs ahead of inflation.

Finance experts have long argued the NHS should not have to balance books on a yearly business - foundation trusts and the majority of businesses all operate on cycles of at least a few years.

Have finances affected the star-ratings?

Yes. Financial management is a key target and as such trusts can incur penalty points for not breaking even.

If a trust fails to balance the books it gets two penalty points, but this can increase to six if there is a serious overspend. A trust needs only seven penalty points to fail and since there are eight key targets there is not much room for leeway.

Bad finances were the major reasons for trusts - and in particular hospitals - to drop a grade.

For example, the North Middlesex, Royal Free and Queen Elizabeth hospital trusts in London all dropped two stars in the ratings.

All had significantly underachieved in financial management.

Should patients be worried?

NHS trusts have always run up deficits from time to time.

However, these deficits are much larger than past ones and it must be seen in the context of the future NHS budget.

In 2008 the record investment increases will come to an end, probably dropping to something just above inflation.

Health service managers warn because of the bumper increase of recent years it will feel like a more severe drop, and warn if trusts do not have their house in order by then services could be cut.

Healthcare Commission chief executive Anna Walker also warned patient care could suffer.




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