Unhealthy method harms NHS

In a special review, the commission concluded that hospital trusts should
remove the current ‘resource’ accounting method, because of its ‘double whammy
effect’. Under resource accounting, initial deficits prompt a cut in spending to
achieve a balanced budget. A deficit of £10m, for example, is carried forward
into the next accounting period and therefore requires the trust to cut spending
by £20m to reach an even keel.

‘Adjustments can clearly make the task of recovery more difficult and are
inconsistent with the trust financial regime,’ stated the review.

A ‘banking facility’ should also be set up to enable the trusts to borrow
capital, and a small percentage of NHS budgets should be pooled to provide a
safety net.

The review criticised the NHS financial reporting regime for not being
aligned with UK GAAP. ‘There appears to be a view that there is an “NHS method
of accounting”, which can be adjusted to fit departmental objectives, rather
than a robust approach to the implementation of UK GAAP.’

Mark Knight, chief executive of the Healthcare Financial Management
Association said the changes could make the NHS more financially stable. Tory
shadow health minister Stephen O’Brien said: ‘We hope the health secretary
learns the lessons of this report, but the question remains: why has she waited
for a gross deficit of £1.3bn before addressing the cash crisis in our NHS?’

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