Lessons from the Hospice Financial Sustainability Index part 1

As part of its role to look at challenges facing hospices the Hospice UK Advisory Council has identified financial sustainability as one of the most pressing issues facing boards and senior teams. 

While issues will vary from service to service, the Advisory Council asked Hospice UK for a tool that might help boards and senior teams identify where they might be at risk to prompt thought around how to mitigate or plan for these. 

By analysing information from hospices’ audited statutory financial statements Hospice UK developed a Hospice Finance Sustainability Index which identifies which hospices might be most vulnerable to financial pressures.

The model is based only on historical information, and there are other ways in which we could have calculated the index which may have given slightly different results. It is intended as a general indication of how a hospice stands financially in comparison to its peers rather than a definitive judgement.

It should also be noted that the index is comparative rather than absolute – i.e. it just compares hospices to each other and not to any external definition of what a strong or weak organisation would look like. 

The overall aim in developing the tool was to provide broad information to hospice finance directors, chief executives and trustees about how they stand in comparison to their peers. It also aimed to trigger a conversation within hospices about the sustainability of their finances and what they should be doing about it.

Over the past few years, I have had conversations with more than half of hospices about their position on the Index, and what it means for their finances.

Broadly speaking, the conversations reinforced the view that the Index provides a good guide as to a hospices sustainability. Of course, the tool is only approximate, and there are exceptions. There were some hospices towards the top of the Index who still felt they were struggling, and some hospices towards the bottom of the Index who felt comfortable with their financial situation. In most cases the conversations were consistent with our expectations based on the Index.

From my analysis (which was based on the financial position before the pandemic) and conversations I came to the view that it was useful to think of the hospice sector in terms of quartiles.

Worryingly, only around a quarter of hospices could be described as being in a strong financial position. Only those in the top quartile felt confident – and also appeared to have the data to back it up – that they had the financial resources to meet the needs of their population over the next few years.

A small proportion – maybe around 5% of the sector – are lucky enough to have perhaps more reserves than they might obviously need. For those trustees, they may want to consider whether they are being too cautious, and what they are saving the funds for. Should they be using the excess funds they need to expand services, or invest in transformative change to better serve their local communities?

But that is a very small minority. Probably around another 20% are in a solid financial position, not in a position to expand dramatically, but able to continue as they are without any immediate financial stress for the next few years.

Severe financial stress

Turning to the other end of the Index, those in the bottom quartile can be characterised as generally being in severe financial stress.

Hospices in this quartile reported being unable to fully meet the needs of their communities, unable to invest in critical areas, and expecting to have to make cuts in services or try to make ever more challenging efficiency savings.

The generous support the government provided during the pandemic relieved the immediate pressure on those hospices, but the worry is that this will soon return unless there is a fundamental change in the way hospices are funded and / or how end of life care services are structured and provided.

A brief window of opportunity

Hospices who were particularly struggling may have a brief window of opportunity whilst the financial situation is more stable to look at their long term model. In particular, they should be making sure they have realistic, stress tested three year financial plans to ensure reserves won’t drop back down to unsustainable levels. They should also consider whether there are ways to collaborate with other organisations to improve efficiency.

'Just about managing'

In some ways more worryingly – as in any sector you will always have some organisations who are struggling for various reasons – is the situation for the majority of hospices in the second or third quartiles of the Index.

Those in the second and third quartiles can be characterised as just about managing – perhaps not needing to make cuts at the moment, but fearing they will need to in the not too distant future. Most of those hospices felt that they did not have the financial resources to meet the needs of their community. They were considering adjustments to staffing levels or roles, which – while stopping short of significant redundancies or closing services – indicated the financial strain they were under.

The high level of government support throughout the pandemic means that the finances of hospices in these middle quartiles are in a better position now than they were pre-pandemic. But the long-term trends of having to spend more than they can expect to bring in have if anything been exaggerated, so there is likely a very short window of relative financial comfort for those hospices.

In the next instalment of this blog I’ll run through some of the common themes raised by hospices who were towards the bottom of the index and the key lessons that can be learned from their experience.