New financial regime must build on Covid arrangements, says HFMA

by Steve Brown

28 May 2020

The NHS needs a more flexible and responsive financial regime as it moves beyond the current temporary framework put in place to support the service’s initial response to the Covid-19 pandemic, according to the HFMA.

In written evidence to the Public Accounts Committee’s inquiry into NHS financial management and sustainability, the association said the pandemic had changed the NHS ‘out of all recognition’ and provided a ‘unique opportunity for widescale redesign including the financial regime.

The usual contracting arrangements across the English NHS have been replaced by a system of block contracts with top-up payments to cover additional costs due to the virus response. This was initially put in place to cover the first four months of the 2020/21 financial year, but has recently been extended until the end of October.

‘However the relatively unlimited level of resource that has been made available to the NHS by the government since the start of the pandemic cannot continue forever, so a financial regime will need to be established to allow the NHS to operate within the available financial envelope,’ said Emma Knowles (pictured), HFMA director of policy and research.Emma Knowles of HFMA

The association’s response said that HFMA members had welcomed the steps taken to streamline the financial regime and reduce bureaucracy. And, in particular, finance directors had appreciated the increase in communications from the financial leadership team at NHS England and NHS Improvement. ‘This is an opportunity to keep the best of the new arrangements that have been put in place and remove the unhelpful elements of the old regime,’ said Ms Knowles.

There have been a number of positive aspects to the service’s response to Covid-19. In particular, virtual clinics had been established at an ‘astonishing’ speed, the association said, and should be continued where appropriate.  However, there is no guarantee that these virtual pathways will be cheaper to run than traditional hospital- based clinics. Clinicians, for example, may spend longer overall preparing for and delivering such appointments.

The association said that new arrangements would need to be properly costed, as would the cost of segregating Covid and non-Covid areas. And financial plans, which would need to be developed alongside funding flow arrangements, would need to be based on best estimates of what business as usual will look like.

The HFMA acknowledged that different payment systems had pros and cons but said that the pre-Covid contracting and tariff arrangements were ‘complicated and administratively burdensome’. Payment by results only really works where demand can be managed and where all services provided can be paid for, it said. Prior to the pandemic, there were moves towards using blended payment contracts or aligned incentive arrangements. However, block contracts were regarded as a blunt tool that provide no incentive for carrying out additional activity.

The association also highlighted the difficulties in restarting cost improvement programmes, which are likely to go hand-in-hand with whatever new financial regime is put in place. With staff under significant pressure as part of the frontline response to the virus, coupled with underlying staff shortages, the association questioned whether now was the time to restart these programmes or to look for ways to reduce staff numbers.

Demand management will also be challenging especially as the service looks to address pent-up demand that has built up during the initial Covid response, while also responding to a growing backlog of treatment and procedures.

The association said that changes would also be needed outside of the health service. ‘Changes made to the financial regime of the NHS will not be effective without equivalent adjustments to the social care system and its funding arrangements,’ the association said. ‘Otherwise the levels of delayed transfers of care will increase again and the default will revert back to going to hospital rather than a more appropriate care setting.’

In a separate submission to the committee’s parallel inquiry into capital expenditure, the association underlined the importance of understanding the level of available capital over the long term. ‘Without a longer-term financial settlement, it is difficult to make any plans,’ it said, labelling the deferral of the spending review as ‘frustrating’.

With a new capital regime in place for 2020/21, the HFMA has also raised concerns about the expectation that the majority of projects within system allocations will be self-financed by providers. ‘The availability of cash to fund capital expenditure does not always match the need for capital investment,’ it said. It added that the balance sheet of NHS bodies and of integrated care systems or sustainability and transformation partnerships needed to be used more to assess affordability.