Financial regime offers regulatory reset

For the current year, the two bodies introduced a number of measures as a step towards ending the system of financial control totals. £1bn was transferred from the Provider Sustainability Fund into national prices and a new Financial Recovery Fund was created – providing targeted support to organisations in deficit.

NHS England and NHS Improvement have set a target for the provider sector to be in balance in 2020/21. However, the increased focus on providers in deficit reflects the objective of all providers and commissioners breaking even by 2023/24.

In a letter from NHS England and NHS Improvement regional teams, providers have been given their indicative FRF allocations along with their financial improvement trajectories. These are expected to inform strategic plans, which are due to be submitted in November.

‘The FRF has been allocated to minimise the number of organisations that would require loan financing if they hit their deficit recovery trajectories, whilst at the same time ensuring that organisations requiring loan financing also receive an appropriate share of the funding available,’ the letter said.

Any remaining funds from the Provider Sustainability Fund and Commissioner Sustainability Fund will be transferred into the FRF from next year. While the FRF will be available to both providers and commissioners in deficit, the vast majority is expected to continue to flow to providers.

‘Crucially this will allow us to move away from nationally-mandated surplus control totals and, as a result, reset our regulatory relationship with organisations which are at least in balance,’ the two bodies said. ‘We believe that such organisations should have the freedom to determine the levels of surplus appropriate to their circumstances and commensurate with their own investment and transformation plans.’

To earn FRF, organisations will have to deliver their financial improvement trajectories. However a ‘material proportion’ of these allocations will be linked to the achievement of system financial improvement trajectories to encourage system working. Further details will be published about how this will work.

Providers achieving breakeven or surplus stand to benefit from a new incentive scheme comprising two elements. The first will provide a one-year transitional reward payment worth 0.5% of income for providers in surplus (before sustainability funding) that deliver a surplus again in 2020/21. The second will reward deficit providers that reach breakeven during the planning period. They will receive a 0.5% reward at the end of the year in which they achieve breakeven and at the end of the subsequent year, as long as financial performance is maintained.

Links to system performance will again be considered.

The letter also refers to the recently published health infrastructure plan (HIP), which could see 40 hospitals built or refurbished over the next 10 years as part of two phases. It reiterated that trusts outside of HIP1 and HIP2 should continue to develop plans and ‘exceptionally strong schemes’ could be considered.

Further work is being undertaken on the arrangements for allocation, approval and governance of the capital regime. But the letter promises that proposals would move towards giving systems multi-year certainty to prioritise capital needs and funding at a local level.