Encouraging signs

by Alex Gild

01 November 2018

The financial infrastructure review has produced some early wins

It looks increasingly as though we can be optimistic that we are going to see helpful changes to the financial infrastructure and funding flows. These changes should enable more effective allocation, planning and spending of resources in the NHS.

The first indication comes with changes to the funding of urgent and emergency care. The costs of delivering these services will now be better reflected in 2019/20 tariff prices after the announcement that a proportion of the £2.45bn Provider Sustainability Fund (PSF) will be rechannelled into these specific tariffs.

By taking this step, NHS Improvement and NHS England have recognised it is time to better reflect the reality of where costs are falling in a system. In doing so, they will also dilute the sometimes perverse effects of the PSF central fund. Instead, fairer funding will make systems more accountable for their costs.

The proposed move to blended payments mechanisms, starting the move away from purely episodic tariffs, also starts to create the conditions and behaviours that will help the service work towards system payment mechanisms. Although blended payment becomes the new default approach for urgent and emergency care, systems are being encouraged to move faster towards population-based payment models where they want to.

Collaboratively agreeing local aims and outcomes for a new payment mechanism has to come first in any design, and there are real opportunities for commissioner and provider partners to take stock of how best to allocate their own system pound.

In many cases efficient cost recovery with appropriate demand (cost) risk and gain share, linked to prevention and patient pathway integration activity across systems, feels like a good place to start. The point is, there is not a one-size-fits-all solution. Keeping new payment mechanisms simple while systems mature should, in my view, be a precondition to improving system alignment on allocation of resources.

More good news, as a result of the central diversion of PSF into the emergency tariff, control totals are to be rebased and will hopefully be more realistic for 2019/20 in terms of stretch. We can understand why control totals need to exist another year to avoid instability and maintain aggregate control during transition into the new five-year funding settlement.

However, it is good to get indications that the control total regime will be reviewed beyond 2019/20 to enable partners to plan more effectively within their systems, without the polarising effect of control totals and perverse incentives on individual organisations.

CQUIN is also happily coming up for review. For providers, this reduces the transactional burden and distraction, with providers needing to earn large components of CQUIN as core revenue funding. Commissioners were also frustrated at the lack of leverage the mechanism really had for innovation and outcomes. If designed well, new payment mechanisms can incentivise innovation and outcomes for patients.

So, we should appreciate the positive early signs from NHS Improvement and NHS England on what is already changing to support transformation of the NHS.

Our HFMA policy team, committees and finance leaders have been considering the change constraining issues of capital funding, unrepayable provider balance sheet debt and the effects of control totals in driving a singular view of financial performance via a revenue target. This control total view has been to the detriment of balance sheet health and scrutiny.

There are some excellent improvement recommendations in the association’s briefing on this topic –

NHS capital: a system in distress? – published at the end of October. We hope this will feed into the continuing financial architecture work stream of the NHS plan. HFMA is at its best when we speak as a profession making practical suggestions for improving the way things work. The financial architecture review for the NHS plan is a critical enabler and HFMA will continue to apply the influence of our association on your behalf.


This blog first appeared as a comment article in the November issue of Healthcare Finance