Support digital transformation with funding reform, says HFMA

In written evidence to the Commons Health and Social Care Committee inquiry on NHS digital transformation, the association highlighted two barriers to implementing digital solutions – inconsistency over use of capital and revenue funding in digital schemes, and potential system blocks.

On the first issue, the HFMA said much of the spending on digital schemes must be accounted for as revenue, even though NHS trusts and foundation trusts receive capital funding for these programmes. Due to this funding route, NHS finance teams can be put under pressure to treat digital schemes as capital spending.

The mismatch between funding route and accounting treatment occurs because capital is usually provided as public dividend capital (PDC), which can only be used for capital projects. But international accounting standards require accounting treatments to be based on the substance of the transaction, and not the funding route.

Determining the accounting treatment can be difficult, and most schemes will include a revenue element. A capital project must see the NHS body acquiring an asset, or the right to use an asset, that will be used to provide healthcare for more than a year. But with cloud-based solutions and software on the rise, more elements of schemes must be accounted for as revenue spending.

The HFMA said this leaves finance teams in the impossible position of choosing to continue with a scheme and funding it from revenue, which could impact on patient care; turning down capital funding and cancelling the scheme; or accounting for the scheme as capital expenditure, breaching their professional standards and risking qualification of their accounts.

Ideally, NHS bodies would be allowed to identify the best digital solution, determine the appropriate accounting treatment, and then receive the funding to match the accounting treatment, the association added. A potential solution is to allow capital to revenue transfers for digital transformation projects that have been reviewed and approved as value for money.

ICB solution

The second potential barrier is in the patient pathway. A number of different NHS organisations can be involved in providing care, the HFMA told the select committee. So, to allow digital solutions to operate across organisations, one body hosts the scheme, receiving the capital funding.

However, the host body is exposed to the risk of other NHS partners pulling out of the arrangements, leaving it responsible for the contract with a third party supplier. There are other risks, including conditions that accompany the funding, and the additional administrative burden for the host body to consider.

A potential solution is for integrated care boards (ICBs) to become the host body, but they cannot receive capital funding as PDC. Capital funding could be given to ICBs as a capital limit, together with the ability to draw down the money. ICBs’ system responsibilities would mitigate many of the risks associated with the current mechanism, the HFMA concluded.

Further evidence to the inquiry can be found here.