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Are agency staff to blame for hospital deficits?

You’re costing me how much? Reuters

In May 2015, the chief executive of the NHS, Simon Stevens, claimed that the entire NHS deficit of £822m in 2014-15 could be accounted for by the “run-up in temporary staffing costs”. Six months into the new financial year, hospitals had overspent by £1.6 billion, the largest NHS deficit ever recorded.

In its report, the hospital regulator, the Trust Development Authority and Monitor, points to ever-growing demand – highlighting an 8% increase in the number of people waiting for treatment, 5% more ambulance calls and a quarter of a percentage point increase in A&E attendances than a year before. “These pressures”, the report says, “coupled with high agency costs for the additional staffing to meet that demand” have compromised the ability of hospitals to manage their finances.

The cost of agency staff has been singled out as the main culprit. Companies providing temporary staff have been accused by the health secretary Jeremy Hunt of “ripping off” the NHS, citing “unscrupulous companies charging up to £3,500 a shift for a doctor”.

The government’s response has been to impose price caps on the hourly rate paid to agency staff. From April 2016, the hourly rate the NHS can pay agency staff will be capped at 55% above the pay levels of permanent staff. Maximum rates have been set out for each staff group. The solution is appealingly simple, but it won’t solve the problem.

What should the NHS spend on agency staff?

Simon Stevens’ statement seems to imply that if the NHS could eliminate spending on agency staff altogether, financial difficulties would evaporate. But this would be foolhardy. Agency staff provide a vital contribution, stepping in at short notice to provide cover. Sometimes this is because of sickness or unfilled vacancies – but often it is because of day-to-day fluctuations in the number of people requiring care, which are difficult to predict.

Earlier this year the National Institute for Health and Care Excellence issued a draft guidance on how best to staff A&Es, intending to extend the guidance to other departments. But these plans were halted in July 2015. In the absence of guidance about the best mix of permanent to agency staff, hospitals are muddling through. This is reflected in the year-on-year variation in the amount spent on agency staff as a percentage of spending on permanent staff. This reached 6% in 2013-14, compared with just over 3% in 2007-8 when hospitals cut back on agency spending to reduce the deficits they then had.

Data about spending on permanent staff in 2014-15 is not available yet, but it is estimated that spending on agency staff amounted to £3.3 billion, up from £2.6 billion in 2013-14.

Concern about the recent growth in both the level and proportion of spending on agency staff is behind the price cap. The cap puts limits on what hospitals are allowed to pay, not on what companies can charge. Hospitals have expressed concern, recognising the danger that if they refuse to meet the going rate they won’t get the staff they need and patient care will be put at risk.

The cap doesn’t fit

But the cap doesn’t address why companies can charge such high rates – this is because there is a shortage of permanent staff.

There are three reasons for the shortage. First, many doctors and nurses choose to work as agency rather than permanent staff. They can earn more and have more flexible working arrangements than those with permanent contracts. A cap on agency earnings may encourage some to return to permanent contracts, but it may drive some away from the NHS altogether. It is not enough simply to make temporary contracts less attractive. But changing terms and conditions for those with permanent contracts is not straightforward, as indicated by the protracted negotiations over junior doctors’ contracts.

Secondly, the pool from which hospitals can recruit has become much smaller, particularly for nurses. The NHS recruited around 6,000 nurses from abroad in 2014 and around 10% of all NHS staff are from outside the European Union. The pool has shrunk, because in February 2015, the Migration Advisory Committee decided that there was no shortage of nurses – citing evidence collated by the Centre for Workforce Intelligence. The decision makes it harder for hospitals to recruit and retain nurses from abroad because they are unlikely to earn more than the requisite £35,000 within five years of working here.

After an appeal by the home secretary, the committee granted a temporary reprieve, but issued a call for evidence that there is a nursing shortage. The NHS needs to supply this evidence.

But if there is a shortage it would be better to train sufficient staff in this country. Plenty of people wish to become nurses – this is amply demonstrated by the 54,000 British applicants competing for fewer than 23,000 university places each year. Training of doctors and nurses is funded by Health Education England from an annual budget of £5 billion.

As it is, this might not be enough – but there are fears that the budget will be cut in the wake of the recent comprehensive spending review. If this means that even fewer people are being trained than necessary, the NHS will become increasingly reliant on agency staff in the years to come. In the greater scheme of things, the agency price cap is merely a sticking plaster, not a cure for financial deficits.

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