The 'new normal' for NHS finances after the COVID-19 pandemic

Patrick Garratt profile picture

26 June 2020

Patrick Garratt
Policy Advisor (Finance)
NHS Providers

As the NHS enters the second phase of the coronavirus outbreak, the provider sector must support the operational demands of the pandemic and begin the gradual return to business-as-usual. Following temporary financial arrangements to accommodate for the first stage of the outbreak, we should now consider what the 'new normal' should look like for NHS finances, and how the provider sector can achieve financial sustainability.

The NHS long term plan established in 2019 was underpinned by the ambition to promote preventative care to improve population health. This necessarily required modifying the existing NHS financial architecture - work which had not been resolved at the beginning of the COVID-19 outbreak.

Ongoing strategic reforms include moving from an activity-based payment system in the acute sector, and from block contracts across the community, mental health and ambulance sectors towards population-based payments. Creating a new financial recovery fund allocation framework to support providers out of deficit. Shifting towards wider system financial and regulatory oversight, which has major implications for governance and accountability at an individual trust level.

Underinvestment in facilities and inadequate access to capital over many years has also strained the ability of providers to deliver adequate, safe and efficient services. Capital budgets are still not yet at the level that the NHS needs them to be sustained in the long term. A new multi-year settlement is needed.

When the NHS stepped up national preparations for coronavirus in March, block contracts were established across the entire provider sector to support a clear operational focus on COVID-19 healthcare. By allocating fixed sums to providers, and compensating any additional costs attributed to COVID-19 activity, the message to trusts has been that financial constraints should not stand in the way. However, while giving providers financial certainty, block contracts remove incentives within the NHS financial architecture that usually encourage trusts to contain costs and build up surpluses. It is currently uncertain how long these arrangements will last, what will replace them, and how any transition might work. 

As the NHS adapts to the second stage of the pandemic, financial support will be needed to meet additional COVID-19 pressures. Coronavirus will be with us for some time: trusts will have to retain surge capacity, and continue to treat critically ill and post-discharge COVID-19 patients. They expect to be supporting vastly expanded testing and, eventually, vaccination programmes. As routine services are resumed, providers will expect a rise in the number of people presenting with serious illness who have not seen a doctor due to the pandemic, a wave of mental health referrals related to the impact of COVID-19 and social distancing on people’s lives, and increasing demand for community care to support shielded groups for the foreseeable future. 

The financial assumptions made by systems and national leaders about 2020/21, and therefore every subsequent year of the long term plan period, are now obsolete. Moreover, providers’ costs have changed significantly following COVID-19 service reconfigurations, and are unlikely to go back to “normal” in the foreseeable future. It is not certain how feasible it will be to undertake reform of payment systems planned for 2020/21 across the provider sector. A return to normal contracting between providers and commissioners would involve additional rounds of negotiations, made more difficult when conducted halfway through the financial year. This will be a hugely complex process.

The suspension of the NHS' normal financial and contracting arrangements was only ever going to be temporary. While this was necessary to quickly support the operational demands of COVID-19, it will be vital to reconsider the financial aims of the long term plan, and how the provider sector can best be supported to return to financial sustainability.




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Patrick Garratt profile picture

Patrick Garratt
Policy Advisor (Finance)

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