Speaking to Healthcare Finance ahead of the HFMA annual conference, Mr Kelly (pictured) said the spending review settlement had provided the NHS with some £9bn more than was originally anticipated in 2019’s long-term plan. ‘That’s a lot of money and there is genuinely quite a lot of extra capital,’ he said. ‘But it will feel tight.’
He acknowledged the real pressures facing the service, both in terms of increased emergency demand and a rising backlog of elective activity.
There has been an understandable fall in NHS productivity as social distancing measures and infection control have reduced capacity over the past 18 months. The task now is to find ways to reduce the impact of the constraints the service has been operating under.
‘I think the biggest challenge for us operationally and financially is to work out how we can reset and reorganise our services to better live with Covid,’ Mr Kelly said. ‘Covid remains a highly infectious disease and we need rigorous infection control regimes. But how do we organise ourselves so that it is not a permanent 10% hit to our output?’
As an example, this may mean finding ways to reclaim theatres that have been repurposed as emergency department assessment units. And the service is likely to need a more localised approach to making risk-based decisions. Alongside this, the transformation of pathways to ‘left shift’ services from acute into community settings will be more important than ever.
One reason allocations may seem tighter in 2022/23 is because NHS England and NHS Improvement will continue to reduce specific Covid-19 allocations – a process already started in the second half of 2021/22.
However, Mr Kelly says this should still cover any additional costs related to Covid. ‘What people are telling us they are spending as additional costs of Covid are materially lower than in 2020/21,’ he said.
Trusts will continue to receive funding to cover their actual additional costs and any reduction will be counterbalanced by an increase in the funding available for elective recovery.
Another noticeable difference will be the lack of specific hospital discharge funding – with the government having indicated this scheme will stop at the end of March.
System allocations will be published before the end of December. The plan is to publish one-year revenue allocations and as much capital as possible across three years.
The one-year revenue allocation is to enable NHS England and NHS Improvement to sense-check that the ‘baseline funding flows are in the right place’ before committing to a longer-term settlement.
There are a number of uncertainties around system funding. Providers have been funded to break even during Covid and there has been a reduced efficiency requirement. Some providers, for example, were running deficits as they entered the pandemic and had their income guaranteed and then topped up.
In fact, Mr Kelly said that ‘almost every system is spending materially more’ than its baseline allocation, as indicated by the needs-based formula. Integrated care board allocations will also be converged over time with their fair share allocation, and those furthest above target will face smaller growth in future years than those under target or closer to target funding.
‘Before I finalise the last two years [of the settlement], we need to do some work to
make sure the baseline funding is in the right place,’ he said.
Three-year capital allocations should provide the service with greater opportunity to plan infrastructure spending. While Mr Kelly is clear that the NHS has had a good capital settlement, the demands on the funds are also high, with a major hospital rebuilding plan under way.
The funding may not allow the service to make major inroads into its backlog maintenance – now £9.2bn – but Mr Kelly said he hoped the service could ‘stabilise’ this figure. And he suggested that specific capital funding for acute capacity and to increase digital maturity across the NHS could free up some headroom within system allocations.
‘We have been given quite a lot more capital,’ he said. ‘It will not solve all our problems, but it should mean we can go significantly further than we otherwise would have.’
Mr Kelly also recognised that, while the service has a huge task in terms of recovery and broader transformation, it is also overseeing a major restructuring exercise with the move to systems from next April.
The creation of 42 integrated care boards, integrated care partnerships and provider collaboratives is a major undertaking, and finance professionals are at the centre of setting up new governance arrangements and closing down old bodies.
He accepted the pressure on staff, and the ongoing demands of the pandemic, but said the benefits of greater integration would help the NHS meet its significant challenges.
‘I’m not sure we are going to get a better moment,’ he said. ‘And we still believe this is absolutely the right thing to do for the long-term strategy for the NHS.’
Costing, payment systems and One NHS Finance
‘The kind of data that we collect is extraordinary,’ he said. ‘I personally think it needs to be more timely. The fact that we are publishing it with a 12- or 18-month lag means it is not as useful as it could be.’
However, moving to more regular collection could mean focusing on data that is ‘good enough’ and ensuring it is standardised so that collection can be more automated. ‘We’ve not solved that yet, but it is still my ambition,’ he said.
On payment systems, Mr Kelly rejected suggestions that the service should continue to use block contracts as it moves forwards into system working.
‘You need to have something that is clear about economy and efficiency and where you know what the cost of the service is,’ he said. And incentives will still be important under the new aligned payment and incentive approach, with a ‘strong volumetric element’ for next year to encourage elective recovery.
He said that 2019/20 would continue to provide the benchmark for activity levels as the last year before the Covid pandemic.
Mr Kelly is fully committed to the One NHS Finance initiative, which recently published its five-year development strategy.
There are separate workstreams to develop finance practitioners, the finance community as a whole and the systems and processes that they use.
Mr Kelly says he is determined the function will be more representative and diverse – particularly at the more senior levels – and says the focus has to be on shared learning and spreading good practice.
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