Hospitals feeling the pinch

The attention of many households has been on budgets this week. In the NHS, it has been a similar story.

On Thursday the NHS Trust Development Authority - part of the Department of Health - released its latest financial forecast for hospitals in England. It made grim reading.

Of the 99 hospital trusts it keeps an eye on - it has no jurisdiction over those trusts given foundation trust status - 26 are predicting they will record a deficit this financial year based on the situation to the end of January.

It means the NHS hospital sector is facing an overall deficit of £247m once the trusts with surpluses are taken into account.

This is much worse than previously forecast, although it must be said the situation looks much rosier once foundation trusts, which tend to be the better performers, are factored into the equation. They are expected to post a surplus of over £100m.

Nonetheless, if that does happen the hospital sector would still finish the year in the red - the first time that will have happened for eight years.

There are a number of reasons why problems are mounting however. Demands are rising, while the amount hospitals get for treating patients has been squeezed as have their training budgets.

Biggest expense

But does this really matter? After all, hospitals are not like a business or households that face the prospect of not being able to pay bills or going to the bank to borrow money.

Instead, the shortfalls are covered by the Department of Health. But that misses the point - and here's why.

The debt is still recorded against the individual trust's balance sheet. This means they have to draw up plans to rectify their financial position and recover the debt.

For those with the biggest problems that can prove very difficult. This was the case for South London Healthcare, the trust which was abolished last year after racking up the biggest historic debt in the NHS.

In drawing up those plans, the 26 NHS trusts forecasting a deficit - and indeed their foundation trust counterparts which are in a similar position - will face some difficult decisions, as the NHS TDA's Winter Report hints.

The next 12 months will see more pressure on hospitals to ensure they have safe nurse staffing levels and meet the requirements of seven-day working. Both these pushes will increase labour costs - the biggest single expense in the health service.

The government argues hospitals can become more efficient. But most would say that will require long-term structural change to the hospital sector. In the short-term hospital bosses say they are faced with a tricky choice: go further into debt or cut back on care.