Financial arrangements for second half of 2020/21 revealed

by Seamus Ward

17 September 2020

NHS England and NHS Improvement have given further details of the financial arrangements for the rest of 2020/21, including how system-level funding envelopes have been calculated.

The new arrangements cover the period from 1 October to 31 March 2021. For the first time, systems will be given fixed funding envelopes. The national bodies believe these will be enough to fund local elective and non-elective activity set out in the guidance on the third phase response to Covid-19.Calculator

Systems will be expected to break-even within these allocations. Individual organisations within a system can deliver surpluses or deficits by mutual agreement with the other bodies in the system, but overall the system must achieve financial balance.

The system financial envelopes are made up of a number of elements. These are:

  • Clinical commissioning groups allocations and block contracts – CCG allocations will continue to be adjusted non-recurrently to reflect expected expenditure. This will include the national calculation of opening block contract values for services provided by NHS bodies, which may be adjusted based on service changes.
  • System top-up – except for specific Covid-19 services (see below), there will no longer be prospective or retrospective top-up funding – instead, additional funding has been issued to systems where expected spending is greater than income. A lead CCG in a system will now issue this funding (no longer allocated directly by NHS England and NHS Improvement). It is expected that non-NHS income will return to 2019/20 levels, except for NHS car park income (parking for staff is free during the pandemic).
  • Covid-19 allocation – additional funding to cover Covid-related costs, which will be a fixed allocation rather than a full cost reimbursement from 1 October. These allocations will be based on national Covid-19 costs in quarter 1, adjusted for one-off or time-limited costs. There are some exclusions, which will be reimbursed on an actual costs basis. Systems should agree the distribution of the funds by the lead CCG.
  • Growth funding – reflecting underlying increases in the cost base, linked to allocation growths for system CCGs, and covering new services and capacity growth.
  • Directly commissioned services – system envelopes take account of funding flowing into NHS providers for these services and the costs incurred in delivering them. Full costs should be managed within the system envelope. Nationally calculated block contract values for directly commissioned services will be issued.

Some services will now be excluded from the system funding envelopes. These include some high-cost drugs and devices. Funding for Cancer Drugs Fund and hepatitis C medicines will revert to being reimbursed on usage. This will mean they are removed from the opening block contract values, with block values amended periodically to reimburse providers based on usage.

Temporary Covid services funded directly by the government on an actual costs basis – such as the Nightingale hospitals and Covid testing services – are also not included in the funding envelopes.

From month 7, non-clinical services contracted by NHS England and NHS Improvement that are normally transacted via invoicing to central corporate budgets will also be excluded. These include specialist pharmacy services. Billing should be based on spending incurred from month 7 onwards. Centrally funded revenue support – for example, private finance initiative revenue support – will remain in system envelopes.

Allocation adjustments such as national service development funding, will be altered to reflect funding already captured in system envelopes and revised priorities for 2020/21. Regional allocation adjustments will resume.

The system envelopes will also be adjusted to reflect performance against elective incentive scheme targets for independent sector activity.

The method used to calculate the value of block contracts, which have been in operation since the beginning of the financial year when the previous financial regime was suspended, will be similar to that in the first six months of the year.

However, there will be a number of changes – where expenditure alters as a result these will be reflected in the calculation of the top-up. The changes include an increase in the de minimis value of block contracts to £500,000 (annualised), though NHS England and NHS Improvement will show discretion to set blocks below this level where appropriate. Block contract values will also be corrected for errors in the month 1 to month 6 blocks, and adjusted for material service changes – these will be accompanied by equivalent revisions in commissioner and provider underlying expected expenditure where relevant.

The HFMA has produced a summary of the guidance, available here 
See also Funding welcomed, but concerns remain