Understanding how the money flows

by Steve Brown

25 August 2017

During August, we are taking the opportunity to focus on some key areas of the HFMA’s policy and technical work and remind members about some of the outputs that might be useful.

Each week we are focusing on a different topic.  This week, the focus is 
funding and payment systems.

Everyone has a view about NHS funding. I’m guessing most people would say it is underfunded. A smaller group might suggest that, rather than increased funding, it needs to improve its efficiency. And a more nuanced view might argue both these things are true.

But how many of the general public have a view about how funding – once the overall budget is set – is allocated? How do you make sure the money you give to one part of the country to spend on healthcare is fair when compared to the amount given to another? How do you take account of the different make-ups of the populations, different levels of deprivation and different levels of need (including unmet need)?

Even if you are happy with how you’ve divided out the overall pot of money, how do you get the money to the frontline – the healthcare providers – to cover their costs and enable them to keep investing in assets and people?

Understanding of the mechanics of allocation and payment is fairly limited among NHS staff, let alone the general public. It is perhaps only within finance departments where a good understanding exists, with the very detailed knowledge concentrated in pockets of expertise.

It is hardly surprising given the complexity of the systems in use. Recognising this, the HFMA earlier this year produced a plain-English guide to the allocation process – divided into two briefings. One deals with the allocation process from Treasury to the Department of Health and NHS England; the other picks up the story as funds are allocated down to local commissioners.

It is not targeted at members of the general public – but it provides a detailed yet accessible guide to the whole allocation process. The CCG guide also provides a simple explanation of how resource limits and the drawdown process works – something you’d struggle to find easily anywhere else.

In contrast to other parts of the UK, the English NHS has been using a national tariff system at the heart of its payment system for providers for over a decade. This has evolved in recent years and the finance function has a key role to play in honing the system so that it incentivises and rewards the intended outcomes.

Instead of simply paying for activity, there have been moves to introduce pathway tariffs – for example for maternity services. The original aim was to encourage more proactive services and provide a fairer system – under old rules, payment was dependent on how providers recorded individual observations and investigations.

It remains a work in progress – especially with new care models to support recommendations from the Better births report potentially needing different payment approaches. A survey-based briefing by the HFMA’s National Payment Systems Special Interest Group has recently looked at improvements that could be made in the short-term.

In attempts to link payment to outcomes and best practice interventions, we have seen an increasing number of best practice tariffs developed in recent years. The HFMA is also helping to refine operation of these special tariffs. For example, a report in April looked at how the current ambulatory emergency care best practice tariff needs to change to fully achieve its goals.

Nationally we have seen a move to setting tariffs for a two-year period, rather than annually. As the HFMA’s Financial forecasting in the NHS makes clear this needs to go hand in hand with longer-term forecasting. Multi-year tariffs both make longer term forecasting more necessary and give the potential for these forecasts to be more accurate.

While the national tariff remains in operation – although many areas have agreed local variations to support different ways of working – there is recognition that the NHS will need new payment systems and other approaches.

No national tariff has ever been introduced for mental health services, although they do have a national currency. In fact, the activity-based acute tariff has often been accused of pulling money into acute services and away from mental health services, covered only by block contracts. Other mechanisms will be needed to help areas meet the mental health investment standard and deliver parity of esteem with physical health services.  

However, in the coming years it will be the development of new models of care that will have the biggest impact on payment approaches. These new models – delivered by accountable care organisations or systems – will need a new payment system that provides financial incentives (or at least eliminates disincentives) for greater coordination and integration of care.

Capitation-based payment systems or whole population budgets are already being tested in some areas to support integrated care models – Mid-Nottinghamshire’s Better together programme provides a good example.

It is not clear what the development of these new models of payment means for the national tariff. Tariffs might still be needed to pay for activity flows across accountable care system boundaries. Some services may still be better served by a simple activity-based model. And the tariff will certainly have a role in informing baseline capitation budgets and may even have a role in supporting benchmarking activities.

A good understanding of allocation and the potential and actual impact of new payment approaches – both inside and outside the finance department – will be vital as the NHS moves to these new models.